Board of Governors of the Federal Reserve System

Figure 1. Share of U.S. Zombie Firms, 2015-20

This figure plots the share of publicly listed and private firms in zombie status during 2015-2020. It is a bar chart with six groups. Each group represents a year (beginning in 2015 and ending in 2020) and has two bars. The two bars are two colors: the first color is red. It represents the share of publicly listed firms that are classified as zombie firms. The second color is gray; it represents the share of privately held firms that are classified as zombie firms. The height of the bars ranges between 0 and 15 percent. For all years, the red bars are higher than the gray bars. The gray bar for 2020, representing the share of private firms in zombie status for 2020, is missing because the latest available data on firms’ financials in FR Y-14Q is 2019.

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Figure 2. Share of Listed Zombie Firms, 2000-20

This figure plots the share of publicly listed firms that are in zombie status during 2000-2020. It is a line plot; the x-axis begins in 1995 and ends in 2022. The data is plotted as a solid, red line. It represents a time series of the share of publicly listed firms that are classified as zombies. Overlaid shaded vertical bars represent National Bureau of Economic Research (NBER)-dated recessions. The y-axis is colored red, too, and runs from zero percent to 15 percent. All values in the solid, red line are above 5 percent. The solid red line is relatively flat from 1995 through 2001; it rises during the early 2000s recession through 2003-2004. It declines beginning in 2004, before rising again during the 2008-2009 Great Recession through 2010. It is flat between 2010 and 2011. It sharply declines from 2011 through 2013. It then rises, roughly linearly, between 2013 and 2018, before sharply declining between 2018 and 2020. It rises roughly linearly as the COVID-19 recession begins. The data ends before the x-axis ends (some time in 2020).

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Figure 3. Comparison of zombie firm shares across measures

This figure plots the share of publicly listed firms and that of private firms that are in zombie status according to alternative measures. There are two panels, stacked horizontally.

The left panel contains line plots. The x-axis begins in 2015 and ends in 2020. The y-axis runs from 0 percent to 30 percent in increments of 5 percent. There are three lines. All lines are red, differing in texture. All lines are relatively flat, showing very small downward trends. The first line is solid red; it is labelled, “Our Measure,” and it represents the share of publicly traded firms that are zombies according to the authors’ definition. It is the lowest among the three, relative to the y-axis. The second line is dashed red; it is labelled “Financial Press,” and it represents the share of publicly traded firms that are zombies according to the definition of the financial press. The “Financial Press” measure considers firms that are mature and have interest coverage ratios (ICRs) below one to be zombies. It is the highest among the three, relative to the y-axis. The third line is dotted red; it is labelled “Academic Research,” and it represents the share of publicly traded firms that are zombies according to the definition of the academic literature. The “Academic Research” measure adds to a low ICR requirement the condition that firms have high leverage and rely on cheap bank credit—that is, firms pay interest rates that are below those applied to the most creditworthy (AAA-, AA-, or A- rated) companies). It is in the middle among the three, relative to the y-axis.

The right panel contains line plots. The x-axis begins in 2015 and ends in 2020. The y-axis runs from 0 percent to 16 percent in increments of two percent. There are three lines. All lines are gray, differing in texture. The first line is solid gray; it is labelled, “Our Measure,” and it represents the share of privately held firms that are zombies according to the authors’ definition. It is the lowest among the three, relative to the y-axis. The second line is dashed gray; it is labelled “Financial Press,” and it represents the share of privately held firms that are zombies according to the definition of the financial press. The “Financial Press” measure considers firms that are mature and have interest coverage ratios (ICRs) below one to be zombies. It is in the middle among the three, relative to the y-axis. The third line is dotted gray; it is labelled “Academic Research,” and it represents the share of privately held firms that are zombies according to the definition of the academic literature. The “Academic Research” measure adds to a low ICR requirement the condition that firms have high leverage and rely on cheap bank credit—that is, firms pay interest rates that are below those applied to the most creditworthy (AAA-, AA-, or A- rated) companies). It is the highest among the three, relative to the y-axis. The first line (“Our Measure”) has a slight upward trend; the second line (“Financial Press”) has a slight downward trend; and the third line (“Academic Research”) has a perceptible downward trend.

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Figure 4. Distribution of Industry Classification in 2019

This figure plots the industry distribution of publicly listed and private firms by zombie and nonzombie status at the end of 2019. There are two panels, stacked horizontally. The left panel refers to publicly listed firms and the right panel refers to private firms.

The left panel is a bar chart; it has six groups. Each group represents an industry, in order: “Mining, Oil & Gas”; “Construction”; “Manufacturing”; “Wholesale Trade”; “Retail Trade”; and “Transportation.” Each group has two bars: red bars represent zombie firms and gray bars represent nonzombie firms (they are in that order, too). The y-axis runs from 0 percent to 60 percent in increments of 10 percent. This represents the industry distribution of the zombies and nonzombies separately amongst publicly listed firms. For “Mining, Oil & Gas” and “Retail Trade” both bars are below 10 percent and the red bar is slightly greater than the gray bar. For “Construction”; “Wholesale Trade”; and “Transportation” both bars are below 10 percent and the gray bar is slightly greater than the red bar. The bars for “Manufacturing” are both substantially larger than the others; both reach approximately 50 percent, but the gray bar is higher than the red bar.

The right panel is a bar chart; it has six groups. Each group represents an industry, in order: “Mining, Oil & Gas”; “Construction”; “Manufacturing”; “Wholesale Trade”; “Retail Trade”; and “Transportation.” Each group has two bars: red bars represent zombie firms and gray bars represent nonzombie firms (they are in that order, too). The y-axis runs from 0 percent to 60 percent in increments of 10 percent. This represents the industry distribution of the zombies and nonzombies separately amongst privately held firms. For “Mining, Oil & Gas” and “Construction” both bars are below 10 percent and the red bar is slightly greater than the gray bar. For “Manufacturing” both bars are approximately 20 percent and the red bar is slightly greater than the gray bar. For “Wholesale Trade” both bars are slightly above 10 percent and the red bar is slightly greater than the gray bar. The bars for “Retail” are both substantially larger than the others; the red bar is approximately 40 percent and the gray bar is approximately 33 percent.

In both panels, the industry classification is based on two-digit North American Industry Classification System (NAICS) classification and sectors with shares of zombie firms lower than 4 percent are omitted.

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Figure 5. Distribution of Credit Ratings in 2019

This figure focuses on credit ratings of firms with zombie and nonzombie status at the end of 2019. There are two panels, stacked horizontally. The left panel refers to publicly listed firms and the right panel refers to private firms.

The left panel is a bar chart; it has four groups. Each group represents a credit rating bucket, in order: “IG, Excluding BBB”; “BBB”; “B or BB”; and “CCC or below.” Each group has two bars: red bars represent zombie firms and gray bars represent nonzombie firms (they are in that order, too). The y-axis runs from 0 percent to 80 percent in increments of 10 percent. This represents the credit rating distribution of the zombies and nonzombies separately amongst publicly listed firms. There is no red bar for “IG, Excluding BBB”; the gray bar is approximately 10 percent. There is no red bar for “BBB”; the gray bar is approximately 30 percent. The red bar for “B or BB” is roughly 50 percent; the gray bar is roughly 60 percent. The red bar for “CCC or below” is roughly 50 percent; the gray bar is roughly two percent. The credit ratings distribution in this panel is based on Standard & Poor’s (S&P) ratings of publicly listed firms.

The right panel is a bar chart; it has four groups. Each group represents a credit rating bucket, in order: “IG, Excluding BBB”; “BBB”; “B or BB”; and “CCC or below.” Each group has two bars: red bars represent zombie firms and gray bars represent nonzombie firms (they are in that order, too). The y-axis runs from 0 percent to 80 percent in increments of 10 percent. This represents the credit rating distribution of the zombies and nonzombies separately amongst privately held firms. There is no red bar for “IG, Excluding BBB”; the gray bar is approximately 2 percent. The red bar for “BBB” is roughly 12 percent; the gray bar is approximately 10 percent. The red bar for “B or BB” is roughly 60 percent; the gray bar is roughly 75 percent. The red bar for “CCC or below” is roughly 28 percent; the gray bar is roughly 15 percent. The credit ratings distribution in this panel is based on banks’ internal rating scores mapped to the S&P ratings scale.

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Figure 6. Duration of Zombie Status and Bankruptcy

This figure reports the distribution of zombie status duration and bankruptcy rates. There are two panels, stacked horizontally.

The left panel depicts the distribution of zombie status duration for publicly listed firms in zombie status in 2019 and is a histogram. It has an x-axis ranging from 1 to 9. It represents the number of years a firm has the zombie classification. The y-axis ranges from zero to 20 percent; it represents the percentage of zombie firms that belong to a given year bucket. There are numerous buckets, incremented by one-quarter years (roughly three months each). The heights of the buckets mimic an exponential decay; the magnitude decreases as the number of years increases.

The right panel depicts the bankruptcy rate of zombie and distressed nonzombie firms and is a bar chart. It has six groups; each group represents a year, beginning with 2015 and ending with 2020. The y-axis ranges from zero percent to five percent. Each group has two bars: the red bar (the first one) represents zombie firms; the gray bar (the second one) represent distressed nonzombie firms. Distressed nonzombie firms are in the top quartile of default probability based on the naïve version of the Merton distance-to-default model of Bharath and Shumway (2008). In 2015, both the red and the gray bars are very low, with the gray bar slightly exceeding the red bar. Aside from 2015, all the red bars are greater than the gray bars. The red bars are roughly around 1.8 percent; in 2020, the red bar spikes to 4.5 percent. The gray bars oscillate between 0.25 and one percent between 2015 and 2019; in 2020, the gray bar spikes to about 3.5 percent.

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Figure 7. Share of Zombie Firms’ Bond and Bank Loan Issuance

This figure reports the share of total bond issuance volume and bank credit utilization for firms in zombie status between 2015 and 2019. There are two panels, stacked horizontally.

The left panel is a bar chart. It has six groups; each group represents a year, beginning with 2015 and ending with 2020. The y-axis ranges from zero percent to eight percent. The chart represents the share of bond issuance that zombie firms constitute. Roughly, in 2015, the value is one percent; in 2016, the value is two percent; in 2017, the value is four percent; in 2018, the value is four percent; in 2019, the value is one percent; and in 2020, the value is one percent.

The right panel is a bar chart. It has six groups; each group represents a year, beginning with 2015 and ending with 2020. The y-axis ranges from zero percent to eight percent. The values have a slight downward trend; the chart represents the share of bank credit that zombie firms constitute. Roughly, in 2015, the value is six percent; in 2016, the value is six percent; in 2017, the value is 5.5 percent; in 2018, the value is 4.75 percent; in 2019, the value is 4.25 percent; and in 2020, the value is 3.75 percent.

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Figure 8. Zombie Firms’ Financing in 2020

This figure reports the interest rate distribution and debt dynamics of firms in zombie status in 2020. There are two panels, stacked horizontally.

The left panel is a box-and-whiskers chart. There are two boxes, “Distressed nonzombie” in gray and “Zombie” in red. The box-and-whiskers chart plots the median as roughly 4.5 percent for “Distressed nonzombie” and roughly six percent for “Zombie.” The interquartile range is wider for “Zombie” than it is for “Distressed nonzombie.” The range is larger for “Zombie” than for “Distressed nonzombie.” The values for the box-and-whisker chart are the interest rate distribution for zombie and distressed nonzombie firms. The y-axis ranges from zero to 20 percent in increments of five percent. The data are from 2020 and the interest rate is computed as interest expenses divided by total outstanding debt. Distressed nonzombie firms are in the top quartile of default probability based on the naïve version of the Merton distance-to-default model of Bharath and Shumway (2008).

The right panel is a bar plot. It has 4 groups; each group represents a quarter of 2020, beginning with 2020Q1 and ending with 2020Q4. There are two y-axes. The left y-axis is red and has units in “USD bn” and ranges from -20 to 60; the red axis is used for reading the red bars. The right y-axis is blue and has units in “USD bn” and ranges from -200 to 600; the blue axis is used for reading the gray bars. Each group has two bars; gray bars represent “Nonzombie” and red bars represent “Zombie.” The values show, in each year-quarter, the change in debt balances for the two firm types. The gray bars are high in magnitude and positive for 2020Q1 and 2020Q2 and small in magnitude and negative for 2020Q3 and 2020Q4. The red bars are all small in magnitude; it is very slightly positive in 2020Q1 and negative for 2020Q2 through 2020Q4.

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