Zombie firms in Sweden do not constitute a threat to either financial stability or economic growth
News, Staff memo In most developed countries, there has been an increase in economically weak companies, known as “zombie firms”. Cristina Cella has studied Swedish zombie firms. Her analysis shows that zombie firms have not increased dramatically in Sweden over the period 2010-2016, and especially not over the period when interest rates were consistently lowered. Overall, the analysis shows that the existence of zombie firms do not pose a significant threat to either financial stability or economic growth.
Between 2007 and 2013, the number of zombie firms increased in the developed world, including Sweden. In a Staff Memo, Cristina Cella has examined the occurrence of zombie firms in Sweden by looking at all non-financial limited liability companies during the period 2002–2016. In her study, she shows that, in 2016, only 3% of the total number of firms in the sample could be classified as zombie firms. She also finds that monetary financial institutions have limited exposure to zombie firms and that, in general, the share of zombie firms has negligible economic effects.
The definition of a zombie firm is that it has an interest coverage ratio (profit before interest and tax over paid interest) below one for at least three years running, and has been in business for more than ten years.
The Staff Memo has been written by Cristina Cella. The author works in the Riksbank’s Financial Stability Department.
About the riksbank’s staff memos
Staff Memos are a form of publication from the Riksbank and a complement to other publications, such as Economic Commentaries and Riksbank Studies. A staff memo provides members of the Riksbank’s staff with the opportunity to publish advanced analyses of relevant issues. It is a publication for civil servants that is free of policy conclusions and individual standpoints on current policy issues.