Zombie companies are businesses that, despite being insolvent, manage to survive for extended periods. Traditionally, these companies are defined by their inability to cover interest payments, but a more refined definition points to companies with low Z-scores, indicating a high probability of default. Over the past three decades, the prevalence of zombie companies has surged, especially in the US, leading to concerns about their broader impact on the economy.
The growing number of zombie companies contributes to the misallocation of resources, disinflation, and reduced productivity. Although zombie companies are inefficient, they continue operating for years due to financial and structural support.
In this episode of Cloud 9fin, distressed debt reporter Max Reyes sits down with Dr. Edward Altman, professor emeritus at the NYU Stern School of Business and famous for developing the Altman Z-Score, to talk about what defines zombie companies, their prevalence and the negative effects they have on the economy.
