Unveiling living dead: characteristics and consequences of zombie firms

Figures & data

Table 1. Data of non-financial firms listed in PSX (2009–2019)

Sr.#	Industry	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019
1	Textile	164	164	155	155	153	152	147	144	136	133	129
	i) Spinning, weaving, finishing of textile	145	145	137	138	136	136	131	128	121	119	115
	ii) Made-up textile articles	6	6	6	6	6	5	5	4	4	4	4
	iii) Other textile	13	13	12	11	11	11	11	12	11	10	10
2	Sugar	36	36	36	32	31	31	31	31	30	29	29
3	Food products	18	18	18	18	17	16	15	15	16	16	19
4	Chemical & Pharmaceutical Products	43	43	43	43	44	45	45	43	43	43	43
5	Manufacturing	33	33	30	31	32	32	32	32	31	32	32
6	Mineral products	8	8	8	8	8	8	8	9	9	9	9
7	Cement	21	21	20	20	20	20	19	18	17	17	17
8	Motor Vehicles, Trailers and Autoparts	22	22	22	22	22	20	18	18	18	18	19
9	Fuel & Energy	18	18	18	19	19	22	22	22	22	22	21
10	Information, Comm. and Transport Services	13	13	13	13	13	13	11	11	11	11	11
11	Coke & Refined Petroleum Products	9	9	9	9	9	10	10	10	10	10	10
12	Paper, Paperboard and Products	9	9	9	9	9	9	8	8	9	9	9
13	Electrical Machinery and Apparatus	8	8	8	8	8	7	7	7	7	7	6
14	Other Services Activities	9	9	10	10	11	11	11	10	10	10	9
		411	411	399	397	396	396	384	378	369	366	363

Table 2. Data of zombie firms (2009–2019)

Sr.#	Industry	2009	2010	2011	2012	2013	2014	2015	2016	2017	2018	2019
1	Textile	73	24	15	16	18	22	61	58	63	56	46
	i) Spinning, weaving, finishing	70	22	13	13	15	20	53	51	56	51	41
	ii) Made-up textile articles	1	1	1	1	1	1	2	1	1	1	1
	iii) Other textile	2	1	1	2	2	1	6	6	6	4	4
2	Sugar	6	3	2	3	4	5	11	7	4	5	6
3	Food products	1	0	0	0	0	0	5	5	4	4	4
4	Chemical & Pharmaceutical Products	12	9	4	3	5	8	18	13	9	9	8
5	Manufacturing	8	5	3	3	7	7	11	6	5	5	6
6	Mineral products	2	1	1	2	1	1	3	3	4	4	4
7	Cement	10	10	9	4	2	2	5	3	3	2	1
8	Motor Vehicles, Trailers and Autoparts	7	3	3	3	1	1	3	3	2	2	2
9	Fuel & Energy	2	2	2	2	5	7	7	6	4	6	5
10	Information, Comm. and Transport Services	5	5	3	2	2	3	5	5	4	4	4
11	Coke & Refined Petroleum Products	3	1	0	0	2	2	2	1	1	1	1
12	Paper, Paperboard and Products	2	1	0	0	0	0	3	3	2	2	2
13	Electrical Machinery and Apparatus	1	1	0	0	0	2	3	1	2	2	2
14	Other Services Activities	3	1	1	2	1	2	5	3	4	3	1
	Total	135	66	43	40	48	62	142	117	111	105	92

Table 3. Measurement of characteristics of zombie firms

Variables		Expected Relation	Measurements	Relation Found in Prior Studies
				Positive	Negative
Liquidity	Current Ratio	Negative	Current Assets/Short-term liabilities		Khan et al. (2017)
	Operating Cash Flow Ratio	Negative	Operating Cashflow/ Current Liabilities		Binh et al. (2020)
	Cash Holding Ratio	Negative	Cash&Cash Equivalent/Total Assets x 100		Dai et al. (2021)
Solvency	Debt to Equity Ratio	Positive	Total Debt/Total Equity	Blažková and Dvouletý (2022)
	Financial Leverage	Positive	Total Debt/Total Assets	Kwon et al. (2015)
	Interest Coverage Ratio	Positive	Net Profit/Interest Expense	Pham et al. (2021)
		Positive	EBIT/(EBIT—EBT)	Seyf (2021)
Profitability	Return on Asset	Negative	Net Income/Assets	Schivardi et al. (2020)
		Negative	EBIT/Total Asset		K. I. Khan et al. (2016)
	Return on Equity	Negative	Net Profit Before Tax/Average Shareholder Equity		Clausing (2013)
	Return on Sales	Negative	Earnings after tax/Sales		Blažková and Dvouletý (2022)
	Net Profit Ratio	Negative	Profit Before Depreciation & Interest/Net Sale		Pham et al. (2021)
Efficiency	Asset Turnover Ratio	Negative	Net Revenue/Average Total Assets		Qiao and Fei (2022)
	Sales to Asset Ratio	Negative	Net Sales/Total Assets		Yu et al. (2021)
	Days Inventory Outstanding	Positive	365 × 0.5 *(INVT t + INVT t-1)/COGS t	Dai et al. (2021)
	Days Payable Outstanding	Positive	365 × 0.5 *(AP t + AP t-1)/COGS t	Dai et al. (2021)
	Days Receivable Outstanding	Positive	365 × 0.5 *(RECT t + RECT t-1)/REVT t	Dai et al. (2021)
	Cash Conversion Cycle	Positive	Days Inventory Outstanding + Days Receivable Outstanding—Days Payable Outstanding	Dai et al. (2021)
Growth	Revenue Growth	Negative	(Revenue t—Revenue(t-1))/Revenue(t-1)		K. I. Khan et al. (2021)
	Asset Growth	Negative	Ln of total assets in year t subtract Ln of total assets in year t-1		Binh et al. (2020)
	Sales Growth	Positive	(Sales t—Sales(t-1))/Sales(t-1)	Grieder and Ortega (2020)
Market	Size	Negative	The logarithm value of total assets.		K. I. Khan et al. (2016)
	Age	Positive	The number of years since the firm’s establishment	Hoshi (2006); McGowan et al. (2018)

Table 4. Summary Statistics for Pakistani Listed Firms

			Percentiles
Variables	Mean	SD	10th	25th	50th	75th	90th	Skewness	Kurtosis
i.Liquidity
CR	−0.03	0.43	−0.58	−0.14	0.03	0.21	0.42	−1.38	6.82
OCFR	−0.70	0.60	−1.51	−1.05	−0.67	−0.33	0.01	0.08	3.91
CHR	−1.50	0.42	−2.11	−1.82	−1.42	−1.33	−0.99	0.36	3.52
ii.Solvency
DE	0.15	0.54	−0.46	−0.15	0.15	0.42	0.74	0.38	6.23
FL	2.62	0.64	1.79	2.30	2.64	2.94	3.43	−0.06	3.89
ICR	1.11	1.25	−0.07	0.26	0.67	1.83	3.26	0.91	3.17
iii.Profitability
ROA	0.74	0.57	0.02	0.44	0.81	1.11	1.33	−0.49	6.28
ROE	1.12	0.63	0.35	0.79	1.19	1.48	1.79	−0.39	5.06
ROS	−0.89	0.66	−1.59	−1.29	−0.99	−0.62	−0.08	1.09	5.61
NPR	0.88	0.76	−0.04	0.40	0.85	1.27	1.85	0.53	4.72
iv.Efficiency
ATR	−0.37	0.51	−0.87	−0.85	−0.31	0.06	0.26	0.00	2.16
SA	−0.09	0.42	−0.58	−0.22	−0.01	0.14	0.30	−1.56	7.49
DIO	2.14	0.90	1.34	1.70	1.95	2.35	3.85	0.73	4.41
DPO	0.06	1.93	−1.92	−1.15	−0.28	0.89	2.43	1.77	6.33
DRO	4.77	6.65	0.63	0.71	2.26	3.23	18.06	1.64	4.28
CCC	2.36	0.97	1.26	1.71	2.46	2.80	3.34	0.62	4.18
v.Growth
RG	0.30	0.65	−0.58	−0.07	0.35	0.85	0.85	−0.25	3.98
SG	−0.73	0.57	−1.42	−1.04	−0.75	−0.43	−0.04	0.52	5.19
AG	−1.05	0.46	−1.64	−1.33	−1.04	−0.73	−0.49	−0.08	3.07
vi.Market
SZ	0.83	0.54	0.22	0.31	0.75	1.18	1.57	0.82	3.79
Age	1.12	0.31	0.78	1.00	1.15	1.28	1.49	−0.52	4.70

Table 5. Probit regression model

Variables	B	S.E
CR	0.06	0.071
OCFR	−0.367*	0.06
CHR	0.069	0.088
DE	0.730*	0.101
FL	−0.041	0.042
ICR	0.027	0.034
ROA	0.128	0.13
ROE	−0.390*	0.115
ROS	−0.179*	0.069
NPR	0.02	0.06
ATR	−0.720*	0.1
SA	−0.382*	0.11
DIO	−0.052	0.041
DPO	−0.015	0.026
DRO	0.043	0.043
CCC	0.045	0.04
RG	−0.377*	0.108
SG	−0.107***	0.056
AG	−0.187*	0.069
SZ	0.01	0.062
Age	−0.291**	0.118
Constant	−2.157*	0.324
Observations	3994
LR-Chi-Square	622.43
Pseudo R^2	0.255

*p < 0.01 **p < 0.05 ***p < 0.1

Table 6. Characteristics of zombie firms

Variables	Correlation	Non-Zombie = 0		Zombie = 1		Test of Differences Non-Zombie = 0 and Zombie = 1
		Mean	SD	Mean	SD	t-test	Wilcoxon test
CR	−0.089	−0.034	0.435	0.000	0.426	−2.056**	−1.929***
OCFR	0.019	−0.614	0.564	−0.970	0.651	16.210*	17.221*
CHR	0.000	−1.508	0.427	−1.490	0.415	−1.110	−1.93***
DE	−0.102	0.094	0.485	0.331	0.650	−11.988*	−12.614*
FL	−0.109	4.600	6.758	4.530	6.707	0.278	1.051
ICR	0.117	1.057	1.139	1.279	1.558	−4.719*	−0.196
ROA	−0.059	0.710	0.575	0.836	0.548	−5.906*	−5.933*
ROE	−0.109	1.084	0.593	1.255	0.729	−7.258*	−6.753*
ROS	0.128	−0.990	0.559	−0.566	0.828	−17.863*	−14.428*
NPR	0.133	0.723	0.651	1.425	0.847	−26.634*	−22.917*
ATR	−0.584	−0.298	0.501	−0.630	0.443	18.102*	16.332*
SA	−0.109	−0.018	0.355	−0.336	0.527	21.115*	19.159*
DIO	0.177	2.154	0.889	2.112	0.926	1.237	0.619
DPO	−0.039	0.109	2.006	−0.090	1.646	2.742*	0.693
DRO	−0.110	4.782	6.663	4.737	6.603	0.182	0.544
CCC	−0.510	2.322	0.985	2.479	0.924	−4.312*	−6.127*
RG	0.015	0.253	0.667	0.461	0.560	−8.590*	−7.495*
SG	−0.088	−0.751	0.567	−0.670	0.587	−3.747*	−4.144*
AG	0.024	−1.031	0.458	−1.106	0.453	4.387*	5.433*
SZ	0.088	0.823	0.549	0.851	0.521	−1.353	−1.694***
Age	0.236	2.614	0.618	2.649	0.712	−1.452	−1.871***

*p < 0.01 **p < 0.05 ***p < 0.1

Table 7. Categorical analysis of existence of zombie firms

Variables	Category	N	Mean	SD	t-test	Wilcoxon test
Leverage	High	506	0.019	0.569	−60.923*	−26.122*
	Low	413	2.822	0.821
Profitability	Profitable	69	−0.354	0.399	−23.825*	−13.829*
	Non-Profitable	850	0.933	0.434
Efficiency	Inefficient	916	−0.635	0.437	−5.384*	−3.058*
	Efficient	3	0.725	0.000
Growth	Low	883	−0.727	0.517	−16.556*	−10.184*
	High	36	0.725	0.475
Size	Small	467	0.408	0.201	−52.141*	−26.242*
	Large	452	1.309	0.313
Age	Old	217	0.696	0.227	−34.532*	−22.145*
	Young	660	1.288	0.216

*p < 0.01

Table 8. Fixed effect model

Ind.G	Coef.	Std. Err.
ZF	−0.039*	0.011
OCFRIA	0.081*	0.014
DEIA	−0.026*	0.010
ROEIA	0.030*	0.008
ATRIA	0.220*	0.030
GDP	0.007*	0.001
CTR	−0.070*	0.011
InfR	−0.029*	0.009
RIR	−0.010*	0.003
GDGDP	−0.009*	0.003
Constant	−1.631*	0.381
Observation	3994
R-squared	0.396

*p < 0.01

Table A1. Nomenclature symbol description

CR	Current Ratio
OCFR	Operating Cashflow Ratio
CHR	Cash Holding Ratio
DE	Debt to Equity Ratio
FL	Financial Leverage
ICR	Interest Coverage Ratio
ROA	Return on Asset
ROE	Return on Equity
ROS	Return on Sales
NPR	Net Profit Ratio
ATR	Asset Turnover ratio
SA	Sales to Asset Ratio
DIO	Days Inventory Outstanding
DPO	Days Payable Outstanding
DRO	Days receivable outstanding
CCC	cash conversion cycle
RG	Revenue Growth
SG	Asset Growth
AG	Sales Growth
SZ	Size
AGIA	Industrial Asset Growth
OCFRIA	Industrial Operating Cashflow Ratio
DEIA	Industrial Debt to Equity Ratio
ROEIA	Industrial Return on Equity Ratio
ATRIA	Industrial Asset Turnover Ratio
GDP	Gross Domestic Product
CTR	Corporate Tax Rate
InfR	Inflation Rate
RIR	Real Interest Rate
GDGDP	Government Debt to GDP
ZF	Zombie
Ind.G	Industrial Growth

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