Evidences and Determinants of Zombie Firms: Implication on Economic Growth

Abstract

The study examined determinants of zombie firms using a sample of seventy five (75) listed non- financial firms in Nigeria. The correlation statistics, panel fully modified ordinary least squares (FMOLS) and panel ordinary least squares estimation methods were applied to analyze the data for the period 2012 to 2019. The study evidenced about 17.3% existence of zombie firms in the non-financial sector. Capital adequacy, interest coverage ratio, earnings before interest, and tax and firm age were found to be the key drivers of zombie phenomenon in the Nigeria clime. These drivers of zombie phenomena were also found to contribute adversely to the economic development of Nigeria, although the impact was not significant. The study concludes that the infiltration/prevalence of zombie firms causes a dragging effect on the economy of Nigeria. The study recommends that the regulatory authority should develop a framework with which firms with a zombie status can be monitored and managed in order to safe guide the interest of shareholders and the adverse implication on economic development. Firms whose performances are akin to zombie firms’ status should be encouraged by regulatory authorities to embrace mergers and acquisition schemes to avoid loss of shareholders wealth and the dragging effect on the economy.

Keywords

• capital adequacy
• economy
• losses
• negative equity
• zombie firm