Description:
We analyze the phenomenon of zombification in Europe and show that monetary policy alone is not its only driver. Concurring phenomena explain zombie and distressed firms’ prevalence. Using Compustat data on public firms, we find that a rise in short-term interest rates is associated with a decrease in zombie status, suggesting that low rates constitute a favorable environment for zombie firms; that there is no evidence of credit misallocation within the ECB’s Corporate Sector Purchase Program; and that a decrease in inflation and a lower state of the business cycle is associated with a rise in zombie prevalence