The rising incidence of zombie firms is widely considered to be a drag on the economy, as zombies congest markets for healthy firms and dampen productivity growth. But new research by Satu Nurmi, Juuso Vanhala and Matti Virén shows the fear of zombies may be largely unfounded. 

Their research to be presented at the annual congress of the European Economic Association documents a surprising finding: one third of these allegedly distressed firms are in fact growing companies and two thirds recover from zombie status to become healthy firms again. Zombie firms are thus often not truly distressed firms but rather growing companies with temporarily weak performance measures.

Their finding thus questions the policy conclusion of rapidly getting rid of such companies. But subsidising zombies to speed-up their recovery is not an obvious remedy either. The research shows that while firms receiving government subsidies are less likely to die, subsidies do not promote recovery of firms.


Economic policies implemented after the financial crisis are alleged to have led to a rise in zombie incidence. Zombies refer to firms that are unable to cover their debt servicing costs from current profits over an extended period. The usual suspects behind the rise of zombies are low interest rates, ‘evergreening’ and government subsidies to firms, all considered to provide these firms with life-support.

Zombies are considered to be harmful to the economy. They are typically less productive than healthy firms, and therefore contribute to weaker productivity growth. 

Another concern is that weakly performing but resilient zombies serve as a drag on the whole industry in which they operate. As they compete for the same resources (thus increasing input prices) and compete in the same market (thus reducing output prices) as healthy firms, they squeeze profits, job creation and investment of the latter.

The study by Nurmi, Vanhala & Virén (2020) performs an ‘autopsy’ of zombies by studying in depth new aspects of these firms using firm-level data from Finland (1999-2017). Furthermore, the authors have access to firm-level information on public subsidies to firms, allowing them analyse the role of various types of government subsidies in keeping zombies alive.

By distinguishing between growing and declining firms, dying and recovering firms, short- and long-term zombies, the authors challenge generally accepted views of these firms as presented in recent research and policy narratives. Their findings are not unique to Finland: research finds similar patterns across numerous EU-countries.

Their findings emphasise that a large share of zombies should not be classified as ‘living-dead’. Rather, conventional zombie measures catch a large bunch of growing or restructuring firms that may be investing into future performance. Falling into the zombie category may just be temporary phase of gathering strength before take-off. 

But nurturing firms classified as zombies by means of government subsidies is questionable, whether or not they are growing or declining zombies: firms receiving government subsidies are less likely to die, subsidies do not promote recovery of firms.

Like other studies, the authors find congestion effects of zombies on non-zombies. But interestingly, the growing ‘false’ zombies have a stronger congestion effect on non-zombies than ‘true’ zombies. This raises the question of whether it may simply be a temporary excess supply of firms that squeezes the profits of all firms in the same sector, rather than misallocated resources.

With the Covid-19 pandemic going on, and polices to support distressed firms are applied across countries, it should be recognised that many zombie-looking firms may in fact be viable growing companies.


Nurmi, Satu & Vanhala, Juuso & Virén, Matti, 2020. ‘The life and death of zombies – evidence from government subsidies to firms,’ Research Discussion Papers 8/2020, Bank of Finland.


Juuso Vanhala
Senior advisor
Bank of Finland , Monetary Policy and Research Department
P.O. Box 160, FI-00101 Helsinki, Finland
Tel. +358 9 183 2596 / +358 50 3870 336