Octus Radio
Edward Altman and Wei Wang Talk Zombie Companies With Reorg’s Gaurav Sharma
Oct 9, 2023
Renowned bankruptcy guru Edward Altman and esteemed finance professor Wei Wang discuss the rise of zombie companies worldwide, exploring factors such as lenient monetary policies and global corporate bond markets. They also analyze the effects of bankruptcy law reforms on zombie firms and explore the negative effects of subsidized credit on resource allocation. In addition, the podcast provides updates on various companies and their financial situations, including Rite Aid, Lumen Technologies, and Sunlight Financial.
40:54
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Quick takeaways
- The rise of zombie companies can be attributed to factors such as lenient monetary policies and the development of global corporate bond markets.
- The prevalence of zombie firms has increased globally, with the United States having a larger fraction compared to other countries.
Deep dives
Definition of Zombie Firms and Factors Behind Their Existence
Zombie firms are economically inefficient, insolvent companies that continue to operate over long periods of time. The definition of a zombie firm requires both a cash flow to interest ratio of less than one over three years and a Z-score indicating high distress over the same period. Factors contributing to the rise of zombie companies include economic growth, industry composition, lenient monetary policies, and the development of global corporate bond markets.
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