Zombie companies are those that cannot cover their financial costs with their results. They have been studied for some years, but the current economic situation caused by the Covid-19 crisis has brought about more publications on this subject.
One of the utmost concerns is the fact that zombie companies received a great deal of aid during the epidemic crisis, which could lead to a "zombification" of the economy. Besides, there is an interest from the governments in helping viable firms.
There is also another type of zombie company: those that we find in the Mercantile Register but do not carry out commercial activity or, more specifically, that do not publish annual accounts. In this case, the Spanish Administration is eager to identify them to fight fraud.
The aim of this study is therefore to analyze the characteristics of these two groups of companies.
1. Zombie companies according to their financial statements:
There is no single definition for zombie company and for this study we have used a synthesis of the OECD’s and Bank of Spain’s criteria. We considered commercial companies, but holding companies, companies belonging to the financial sector, companies less than 10 years old, and companies belonging to Business Groups were excluded.
Then, we selected companies with an interest coverage ratio < 1 for 2 consecutive years (2019 and 2018) and we compared them with companies with the same characteristics.
With these parameters, we identified 577,341 trading companies older than 10 years and, within this group, 39,560 companies with the interest coverage ratio below 1; these are the so-called zombies and represent 6.85 % of the total.
In 90.80 % of the cases, zombie companies are micro-enterprises, i.e., 5 pp more than the distribution of the comparison companies.
Zombies mainly belong to the Construction and real estate and Communication sectors. In the case of Construction and real estate, zombies are mainly concentrated in real estate activities while the Communication sector focuses on computer-related activities. The high concentration of zombie companies in the real estate sector could possibly be explained by its activity cycle.
In general, the geographical distribution corresponds to the comparison group, except in Catalonia where there is a lower proportion of zombies than in the comparison group (-3.05 pp). Furthermore, the rate is higher in Asturias, Galicia and the Basque Country.
2. Zombie companies due to inactivity:
The second group of zombies are companies that are registered in the Mercantile Register but remain inactive and, more specifically, do not publish their annual accounts. Being quite aware of similar behavior in the past, the Spanish Administration is preparing to roll out legislation in order to prevent probable fraudulent activities, such as money laundering, coming from those companies whose inactivity seems suspicious.
Aware of this reality, Informa has developed a continuous detection system to identify and deal with such companies since the 1990s.
Currently, out of more than 7 million companies listed in Informa's database, 1,439,168 can be considered as zombies with no business activity being recorded. In 2020 alone, some 75,000 companies were identified.
Most of these companies, specifically 58.23%, were incorporated before 1995 and 54,227 have been identified in the last 5 years.
Inactive companies are mainly located in Madrid (24.66 % of the total), Catalonia (20.05 %) and Andalusia (10.14 %), which are the areas with the highest concentration of economic activity.