Can Zombie Firms Survive Rising Interest Rates?

Companies that can’t pay their debts are supposed to turn things around or go out of business. But across the world, a rising number of “zombie firms” are limping along, unable to pay their debts but somehow hanging on. Now, with interest rates rising, the question is whether the zombies will start dying off. If they do, it could be painful in the short run. But it might present acquisition opportunities for stronger companies, too.

Economists have been warning for years about the rising number of “zombie firms” — companies that don’t generate enough cash to pay the interest on their debts. Companies that can’t pay their debts are supposed to turn things around, restructure, or go out of business. But zombies just keep staggering along, tenuously alive, and some researchers worry that they act as a drag on the entire economy by using up resources that could be better spent elsewhere. 

With economic conditions changing rapidly, however,…

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This article was written by Walter Frick and originally published on hbr.org