Are you a Zombie? Understanding the Determinants of Distressed and Zombie Companies

The last decades have witnessed a significant increase in the share of zombie companies worldwide, i.e., companies which survive despite their inability to cover debt servicing costs from their current profits. Using extensive global firm-level data sets on publicly listed companies, we apply decision trees, a supervised learning method, to identify the firm-specific determinants of zombie companies across countries and time. This paper fills the gap by investigating the characteristics and behavior of public companies worldwide. We outline similarities and differences across economies and examine the distinct features characterizing distressed, recovered, and healthy firms, by implementing separate classification trees for several business cycles. The results yield novel implications regarding regulatory and governmental settings that foster unproductive companies