Zombie firms and a low-interest environment - an empirical analysis of ultra-low interest rates in relation to the surviving of inefficient firms in the nordic region

Abstract: This paper examines the relationship between ultra-low interest rates and the amount of zombie firms using panel data for Sweden, Norway, Denmark and Finland over the period 2007-2020 in a multivariable regression model. Specifically, the questions addressed are: is there a relationship between the interest rate and the amount of zombie firms? Could it be concluded that the amount of zombie firms increases during periods of low interest rates? This study documents a statistically significant relationship between ultra low interest rates, i.e interest rates below the inflation target of 2%, and the increase in the amount of zombie firms. However, it can not be concluded that a further decrease in ultra low interest rates affects the amount of zombie firms. Two more variable used in the regression, GDP output gap and inflation, does also show a significant relationship with zombie firms which leads us to conclude that further research on this topic would be beneficial.