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Zombie Corporations

The full paper is well above my pay grade but the summary article about zombie corporations was good reading. There are implications for which companies should receive stimulus money in a crisis such as the pandemic and who should not

The congestion effects on non-zombie firms and the adverse effects on aggregate productivity also found by previous studies therefore probably not only capture the direct effects of zombie firms but also indirect effects through a growing number of weak recovered zombies.

Finally, the results underline the challenge facing public authorities when taking measures to contain the impact of the coronavirus recession on firms. The delicate task is to seek to shore up companies that would be viable in less extreme circumstances while at the same time not excessively dampening corporate dynamism by protecting already weak and unproductive ones. A firm’s viability should therefore be an important criterion for its eligibility for government and central bank support.

In simple terms, there are companies that are weaker and underperform peers in the best of times. And there would be a myriad of reasons - bad leadership likely becoming the overwhelming common denominator. Needless to say, such companies are not set up to weather a storm and grow even weaker in crisis. The question is should they be lent a helping hand (specially if there are structural flaws inside - sluggish and declining for service or product, poor management, operational inefficiencies and so on).Would that bailout serve well managed companies that are suffering consequences of events they do not control. 

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