Promotion gibt wei­tere Indi­kation für Zom­bi­fizierung

In den vergangenen Jahren gab es etliche Studien zum Thema „Zombifizierung“. Auch ich habe diese zum Thema bei bto gemacht. Die offizielle Volkswirtschaftslehre – vor allem, wenn sie der EZB nahe steht – leugnet das Phänomen gern. Jedoch finden sich immer weitere Indikatoren für die Zombifizierungswirkung der Geldpolitik.

So auch in einer neuen Promotion von Dr. Dietlinde Schumacher an der WHU – Otto Beisheim School of Management. Titel: Corporate investment in a low interest rate euro zone environment”.

Werfen wir einen Blick auf die Kernergebnisse, die mir Frau Dr. Schumacher freundlicherweise zugesandt hat. Es ist Wochenende, also Zeit genug für etwas „schwerere Kost“:


“The past ten years have been marked by a severe global financial crisis. While the roots lay in the U.S. American real estate sector, turbulences soon spread to the financial / banking sector and the real economy. During the peak of the crisis, governments of all major industrialized nations faced roaring sovereign debt yields. A large variety of governmental and central bank policies was initiated, including the ESFS / ESM funds in the European Union. Further, key interest rates were lowered to previously unthought-of low levels. As a consequence, financial markets were flooded with unlimited liquidity. Due to the digital nature of modern finance, liquidity was created without actually increasing the monetary aggregate. So, while the consumer price indices remained relatively stable, the value of sovereign and corporate financial instruments (shares and bonds) increased significantly. Firms were thus provided with support from two sides: First, borrowing conditions improved dramatically as bank loans became available at nearly zero cost. Second, liquidity-flooded financial markets in search for productive investment were eager to buy firm shares and bonds.

This leads to the thesis’ main research question, namely whether European firms used these favorable financing conditions to engage in increased corporate investment (fixed assets and R&D) to secure future competitiveness. Emerging from a severe global economic crisis that forced numerous companies to exit the market, an increased level of firm investment presents a rational and value-increasing use of ‘cheap finance’.

Building on U.S. American evidence (McLean and Zhao, 2014), investment reacts positively to Tobin’s q in a growing and optimistic business environment. Cash flow becomes an important driver of corporate investment in recessionary times. These two explanatory variables are used on a European firm data set comprising companies incorporated in one of the 18 Euro member countries. The European sub-set of euro-member countries is used to account for the fact that these economies are tied together by a common currency and thus by the same ECB policy. The European results indicate that corporate investment in euro firms remains dependent on internal resources (cash flow), even in times of economic growth and good increased sentiment.

By further dissecting the data set according to corporate traits known to have an influence on financing conditions and investment decisions (size, age, form of incorporation etc.), this thesis analyzes the accuracy and applicability of these traits to a European context. Corporate traits of financial dependence have the same effect on firm financing and investment as in the U.S.

To test for the effects of the unique assistance program ESM on corporate investment, a special ESM dummy is introduced in the regression framework. The results indicate that – despite targeted and powerful tools used to sooth international financial markets and provide countries with renewed access to bond finance – the effect on corporate investment has been mixed. Improved financial conditions may not have compensated for an economic environment marked by insecurity and recession. Rather, the influx of massive liquidity may have led to a situation in which de-facto insolvent companies are provided with the means to at least honor their debt obligations and keep business running (OECD, 2017). This conclusion follows especially from highly-indebted firm regression results: These firms’ investment becomes significantly less dependent on internal resources. At the same time, there is no investment-inducing effect of sales growth / Tobin’s q.

As pointed out by Blattner et al. (2018) financial institutions providing firms with additional leverage have an intrinsic interest to keep these zombies alive. As long as firms do not file for bankruptcy, their debt obligations may be kept in banks’ balance sheets. Consequently having to write-off these loans may lead to severe financial turbulences in banks already damaged by the global financial crisis and stripped-off business opportunities by generally lowered interest rate levels.

While lowered key interest rates have had a calming effect on financial markets and the real economy, corporate investment has not sparked as a response to this liquidity rush. At the same time however, a market cleaning by firms bankruptcies has not occurred: corporate zombies have emerged that crowd out healthy firms in need for financing to fund value-increasing corporate investments.”

Details & Diskussion


„In response to the 2008 / 2009 financial crisis, central banks in all leading industrialized nations have engaged in extreme and unprecedented monetary expansion. The Federal Reserve (Fed), the European Central Bank (ECB), the Bank of England (BoE), and the Bank of Japan (BoJ) have increased their holdings of treasury and corporate bonds, thereby infusing immense amounts of liquidity into the financial systems around the world.” – bto: Das ist bekannt und angesichts der Alternative wohl auch erforderlich.

“By doing so, long- and short term interest rates have even been lowered to subzero values over the past 10 years. The theoretical grounds for expanding central banks’ balance sheets and effectively cancelling the price of liquidity are threefold:”

  • “First, highly indebted countries, especially in the European periphery, were provided with the means to fund necessary reforms.” – bto: Wie wir wissen, kam es anders.
  • “Second, financial institutions were de-facto unburdened by their holdings of lower grade sovereign bonds. The latter reconstruction of bank balance sheets was in turn implemented to ease the workings of the (bank) lending channel to corporations and households.” – bto: Es wurde versäumt, die europäischen Banken zu sanieren.
  • “Third, improved financing conditions (i.e. lower interest rates but, more importantly, the general availability of credit from financial institutions) were expected to ignite corporate investments.” – bto: Und hier zeigt die Studie, dass das Gegenteil der Fall war: die Zombifizierung.

“There exists, however, an imbalance between the unlimited availability of low cost debt and the observed value of investment activity. This discrepancy forms the basis of the analysis of corporate investment across all euro zone countries.” – bto: Und dieser Frage geht die Dissertation nach. Konkret:

 Has corporate investment in the euro zone positively responded to expansionary monetary policy?”

  • “The thesis analyzes the effect of unconventional monetary policy (UMP) measures – namely the European Stability Mechanism (ESM) – on the real economy in euro member countries, namely corporate investment.
  • The thesis comprises three main constitutive analyses to examine the effect of lower interest rates/ favorable lending conditions and corporate investment:

1)     Connection between lower interest rates and corporate investment in Euro zone:

  • Building on existing U.S. American research that studies the connection between general business environment, corporate financing conditions, and investment activities (McLean and Zhao, 2014), this relationship is studied in a European context.
  • Hypothesis 1: When investor sentiment is low, investment will become more sensitive to cash flow & less sensitive to Tobin’s q (and vice versa).”  – bto: Tobins q ist, vereinfacht gesagt, die Relation zwischen dem Marktwert einer Unternehmung und dem investierten Kapital. Ein hoher Wert bedeutet also, dass die Ertragskraft über den Kapitalkosten liegt und deshalb die Märkte das Unternehmen höher bewerten.
  • Hypothesis 2: When the economy is in recession, investment will become more sensitive to cash flow & less sensitive to Tobin’s q (and vice versa) [In einer Wirtschaft, die sich in einer Rezession befindet, werden Firmen eher investieren, wenn sie genügend interne Ressourcen zur Verfügung haben  – ggf. auch, weil sie keinen Zugang zu externen Quellen haben – und nicht automatisch nur, wenn es gute Investmentopportunitäten gibt (Tobin‘s q)].” bto: Genauso ist es. Eigentlich entscheidet immer die Attraktivität der Investition und danach die Finanzkraft und erst dann die Finanzierungsmöglichkeiten.

2)     “Connection between investment-hampering corporate traits and corporate investment in Euro zone:

  • Further and again building on the vast literature on financially dependent firms, different corporate traits known to negatively affect access to external finance are compared.
  • The underlying hypothesis assumes that financially constrained firms will experience difficulties in raising external finance, leading to an increased propensity to cut back on investment.
  • Hypothesis 3: Financially dependent firms will be more sensitive to cash flow and less sensitive to Tobin’s q than their unconstrained peers.
  • A similar logic applies to firms that operate in industries where frequent investments in either R&D or fixed assets are necessary to keep the competitive edge (e.g. pharmaceuticals, automotive).
  • Hypothesis 4a: Firms from industries that rely on fixed assets investment will become more sensitive to cash flow and less sensitive to Tobin’s q.
  • Hypothesis 4b: For R&D-intensive firms, results may be less pronounced with respect to cash flow, given that investment-smoothing cash reserves exist.

3)     Connection between the use of ESM instruments in Portugal/Spain/Greece and corporate investment in these specific countries:

  • Given the unique ESM instrument, a subset of (financially dependent) firms from recipient countries (Spain, Portugal, and Greece) is analyzed in more detail.
  • Hypothesis 5: Firms incorporated in euro zone countries that received aid through the European Stability Mechanism will become less sensitive to cash flow and more sensitive to Tobin’s q.”

“1)     Results with regards to connection between lower interest rates and corporate investment in Euro zone:

  • Firm investment in the Euro zone reacts positively to both Tobin’s q and cash flow, which is exactly what has been found in the U.S. American study of McLean & Zhao (2014).” – bto: Es leuchtet ein, dass vor allem Unternehmen investieren, die gute Geschäfte machen. Alles andere wäre auch verwunderlich.
  • “However: The positive expansion / cash flow coefficient stands in contrast to McLean and Zhao’s (2014) U.S. results, which display a negative coefficient [Hypothesis 2]. The European results thus indicate that an improvement in economic conditions leads to an increased cash flow sensitivity.
  • The same positive and significant sales growth (Tobin’s q) and cash flow relationships are found, which includes interaction terms with the sentiment dummy. U.S. results, according to McLean and Zhao (2014), indicate a negative relationship between improved sentiment and cash flow.
  • Explanation:o   The (unexpected?) positive and significant connection between improving economic conditions / overall sentiment and cash flow may be driven by various factors.
    First, European financing is dominated by banks. Anglo-Saxon firms raise significant amounts of funds in capital markets. Both share issues and debt instruments play a role, as pointed out by McLean and Zhao (2014) and Gugler (2007). Capital market investors place more importance on factors like investment opportunities (q) as opposed to banks, which focus on sound financial and operational aspects – independent of the economic situation or sentiment.
    Second, no sales growth (Tobin’s q) interaction term is a (significantly) positive driver of investment. This might have to do with the type of investment undertaken by European firms. The U.S. can be regarded as the leading country for firms engaging in technological innovations (Apple, Alphabet, Microsoft etc.) while Europe is still relying on “traditional” industries like car manufacturing, chemicals, mechanical engineering etc. Investment in these industries may be associated with less speculative, but more tangible projects. ‘Investment opportunities’ become less important than internal resources to fund fixed-assets purchases with a (more or less) predictable payoff.

2)     Results with regards to corporate traits:

  • Hypothesis 3: The results show that European firms possessing certain corporate traits (young, private, small, and highly indebted) show an increased financial dependence, just as their U.S. American peers
  • Hypotheses 4a is thus fully confirmed for fixed assets investments. The higher the upfront fixed assets existent in a firm, the more dependent is future investment on the existence of internal funds.
  • For R&D investment [Hypotehis 4b], neither promising growth opportunities nor sufficient internal resources boost investment activities in firms already highly engaged in R&D projects. This negative relationship amplifies as a firm moves from ‘high’ to ‘very high’ up front R&D investment. Hypothesis 4b is thus confirmed: High R&D firms’ sensitivity to cash flow declines. It could be that investment-smoothing cash reserves drive this result.

3)     Results with regards to ESM assistance:

  • Further there is no clear indication that corporate investment has increased after ESM assistance was set in place – both because financing frictions prevailed and because investment opportunities (as measured by a q-like variable) were not seized.
  • Despite the existence of viable growth opportunities (as measured by Tobin’s q), investment does not increase. It could thus be inferred, that ESM aid has not had an investment stimulating effect on average. Viable investment opportunities may however be hard to find (and finance) in an economic environment marked by insecurity, recession, and high unemployment, as seen in the euro periphery after the onset of the crisis.

4) Results with regards to certain corporate traits:

  • The (partly significant) positive effect of Tobin’s on investment activities as seen in private and highly indebted firms could be driven by the existence of close ties between banks and firms in ESM countries. This notion is consistent with previous research (Jimenez et al, 2014; Blattner et al., 2018).” – bto: Gemeint ist hier die Studie von Frau Blattner, die in Portugal gezeigt hat, dass die Banken den schlechtesten Schuldnern weiter Kredite gaben und die Kredite an die gesunden Schuldner zurückgefahren haben.
  • It seems as if firms have (re-)accessed bank funding after financial institutions had been provided with liquidity though the ESM program. At the same time, small and young firms still have to rely on internal resources to fund investment. This view is again consistent with previous research by Ciccarelli and Maddaloni (2013), who describe the on-going weakness of borrower balance sheets.” – bto: Das ist alles nett umschriebene Zombifizierung.
  • It could be that highly indebted, private firms crowd-out small and young firms with interesting investment opportunities in their competition for bank finance: As described by Jimenez et al. (2014); Blattner et al. (2018), Spanish and Portuguese banks may have preferred existing and highly indebted corporations when granting loans.  The risk of borrowers defaulting on their older bank debt, thereby negatively affecting an institution’s balance sheet, liquidity, and credibility might have been sufficient to provide these financially constrained ‘clients’ with even more credit.
  • This interpretation is supported by the findings for highly indebted firms: These firms display a higher up-front propensity to invest (‘debt ratio large’ dummy) and are less dependent on internal liquidity than their less indebted peers. This finding, especially during one of the most substantial financial crises of the past decades, is counterintuitive.
  • How is it possible then that those firms, already bearing high levels of debt take advantage of investment opportunities – mostly financed by outside funds – in times of tight credit markets? Or has the intervention of the European Stability Mechanism led to a liquidity rush in the banking sector, which these institutions passed on to highly indebted firms? Or is it just this combination of both factors that explains this initially illogical picture? Have troubled banks, which benefited most of selling illiquid and highly depreciated sovereign debt to the European Stability Mechanism fund, used the proceeds to stabilize another position in their balance sheets, namely debt outstanding, used by long-standing and severely impaired corporate clients? The phenomenon of corporate ‘zombies’ as well as their institutional ‘peers’, which only survive thanks to the extremely (at times even negative) key interest rates, is stressed by various authors. Especially an OECD study (2017) discusses this concept: ‘While finance is necessary to sustain corporate investment and productivity, too much debt relative to investment can also undermine the allocation efficiency of productive capital’.
  • As highly indebted firms lose their ability to raise new debt to fund investments, they lose their competitiveness: ‘As a result, firms with persistently high level of indebtedness and low profits can become chronically unable to grow and become ›zombie< firms’. The positive indebtedness / increased investment relationship for firms incorporated in ESM countries does not rule out that only replacement investment took place, not advancing the competitive position of the corporation.

Interpretation der Ergebnisse

a)     Unprecedented monetary policy actions

As stated under the ‘time period analyzed’ section, a large part of the firm-level data have been gathered during a time of macro-economic turmoil. This has led the ECB, but also all other major central banks, to take unprecedented policy actions. Central banks have acquired large amounts of sovereign and private (business) debt – even company shares have been bought by central bank institutions. The aim behind these measures was to reduce the adverse effects of the financial sector on the ‘real economy’. This would have led to a worldwide recession encompassing sovereign, business, and household bankruptcies. The U.S. American TARP program or the European ESM / EFSF actions are examples of more targeted measures to lower the overall interest rate level and providing all market participants with sufficient liquidity. When interpreting the euro, but also the Swiss and the British investment regressions, this unique economic environment marked by insecurity and recession, should be kept in mind.

b)     ESM program aid different across countries

The just-mentioned ESM program has taken on different forms across recipient countries. While the ESM fund has been established to acquire sovereign debt of troubled euro-member countries, which are unable to raise funds on the open market, the ESM has also operated differently. In Spain, for example, troubled banks have been provided directly with additional liquidity through the fund. While the ‘ESMyesTime’ dummy flags all firm observations from a given country in the year ESM assistance started, there is no “quality” dummy. The quality of the assistance differs across countries, and so will the effect on bank lending, corporate borrowing, and investment.

c)     Single European currency implications

Just the opposite of the ESM assistance is true for the ECB policy: There is no country-specific variation with regards to key interest rates, exchange rates, or bank regulation. Albeit this policy uniformity, the effect of central bank decisions on each of the 18 Euro member states will differ. The fact that different Euro economies will react differently to the same ECB measure will have an effect on national financing conditions and the economic environment influencing investment decisions.

Schlussfolgerungen für die Wirtschaftspolitik

Euro area considerations

The main problem that has become evident during the research is related to the euro area and ECB policy, namely that ‘one size doesn’t fit all’. An example of this is the ECB’s quantitative easing taking place since 2008 / 2009, which supports the euro area’s economic stability. ECB’s policy has led to lowered interest rates across the continent, providing especially troubled governments with access to continued funding at reasonable costs. Governments from Greece, Portugal, Spain, but also Italy, have re-accessed sovereign debt markets through programs like SMP, ESM, EFSF. Financial markets have further been ‘soothed’ by the fact that the ECB is theoretically ready to implement OMT. This has effectively provided governments in the south of the EU with the financial means to continue public operations and with time to implement necessary economic and fiscal reforms. At the same time, ‘healthy’ economies as the German, Austrian, and Dutch have also had the possibility to raise new sovereign debt at lower rates than before the crisis – even though the necessity may not have been as urgent as in the euro-periphery. This, in turn, has increased the economic imbalance within the euro area, with the ‘north’ progressing and the ‘south’ falling further behind.

However, there are two aspects that will hinder troubled countries from fully reviving to pre-crisis levels: The first aspect refers to the inability to re-balance the value of goods and services produced or imported through national exchanges rates. This has been possible before the introduction of the euro as the only currency for 18 fundamentally different economies. For southern European goods to become competitive again, prices have to adjust downwards. This is not possible though, since all input factors are also denominated in Euro. Coupled with production processes lacking necessary R&D investment, goods are becoming increasingly uncompetitive, which in turn hinders economic recovery.

The second aspect refers to moral hazard: As long as sovereign debt rates stay low and as long as there is financial backing-up funded by all euro member countries (ESM, OMT), troubled governments will not pursue economic and fiscal reforms with focus and urgency. This has led to ongoing political conflicts within the group of euro member countries and has introduced involuntary dependencies between governments.

Corporate financing and investment

In order to re-ignite economic growth in some parts of the Euro-zone, more targeted measures focusing on firm investment are needed. The SMP / ESM has alleviated national financial systems from ‘toxic sovereign assets’ and should have restored lending activities to the private sector. As pointed out by Blatter et al. (2018), many financial institutions are still holding ‘toxic assets’ which inhibit them from issuing new credit. The solution should not lie in transferring these toxic assets to another European fund. Moral hazard problems associated with this option should not be underestimated. Rather, a financing bypass for corporations should be introduced. Firms with viable growth opportunities should not be forced to forgo these, but should be supported on an individual and targeted manner.” – bto: Hier würde ich es anders sehen. Die faulen Kredite müssen den Banken abgenommen werden und dann muss man die Zombies entweder wirklich sanieren oder aber zumachen. Haben die Banken wieder gesunde Bilanzen, werden sie die guten Schuldner gern finanzieren.

“Connected question with regards to corporate investment is however linked to the pure existence of attractive investment opportunities. Providing necessary funding to firms is important; providing a stable and fruitful economic environment is undoubtedly more important. The simple existence of ‘cheap’ funding, as seen in the past years, has not resulted in increased investment. Many of the regression results presented earlier indicate that neither sufficient internal resources nor the unhindered access to external finance have led to increased investment. This reaction can be explained by ‘the big picture’: The economic environment is still marked by insecurity, remaining in a state or emergency with all market participants being dependent on unlimited and low-cost liquidity. The indebtedness prevalent in households, firms, and governments is still significantly increased. ‘Cheap money’ postpones the bankruptcy of overly indebted insolvent agents. As described by the OECD (2017), zombie firms have emerged that crowd-out new growth and hinder other firms from accessing bank credit. As long as these zombies exist, it will be very difficult for non-zombie firms to ignite new growth and dissolve the overall economy’s dependence on central bank interventions. The magnitude of the 2008 / 2009 financial crisis has been reduced by central bank policy and has prevented economies around the world from going through a healthy process in which uncompetitive market participants are eliminated.

Facing the truth

There are two further conclusions from the latest global financial crisis, which are concerned with the way academic and political discussions are conducted.

The global financial crisis should be regarded as a warning to academic research. Despite econometric advances and detailed models, this event and its dimensions have come as a surprise to most researchers. This has to do with the most researchers’ focus as described by Caballero (2010). The author points out two important aspects of macroeconomic research: First, researchers have engaged in ‘fine-tuning’ of econometric models, while not fully grasping the big picture. Second, policy makers relying on the faulty assumption of ‘understanding it all’ could be basing their decision making on wrong assumptions.” – bto: Und sie haben Banken bzw. das Finanzsystem in ihren Modellen gar nicht berücksichtigt.

“This ‘surprise’ and the financial crisis’ effects are however also linked to subsequent governmental and central bank actions, which could not have been forecasted by any model. There are several examples: 1. Banks extending credit to individuals with low- or no credit worthiness, subsequently bundling these ‘assets’, and selling them world-wide; 2. European governments extending default guarantees to other nation’s sovereign debt and engaging in unprecedented purchases of bonds (ESM); 3. Central banks lowering key interest rates to below-zero levels to ‘keep the system running’. These actions were not necessarily included in econometric models because they were either unthinkable (negative interest rates), or because they were actually forbidden by law (one government extending default guarantees for another one). Another example is the actual vs. assumed creation of liquidity. As described by Jakab and Kumhof (2015), private banks are the actual creators of additional liquidity, which stands in contrast to the deposit multiplier model proposed by traditional academia. The latter aspect underlines the importance of comparing theoretically derived assumptions with real-world developments.

The second conclusion is concerned with the way macroeconomic and fiscal public debate should be handled in the future. Political discussions in Europe over the past ten years have shown a tendency to be marked by finger pointing (‘the south is x, the north is y’), to be overly simplistic in explaining interdependencies (‘private banks have to be alleviated of their holdings of toxic assets for new credit to flow and economic growth to reignite’), and in proposing only ‘absolute’ truths (‘certain banks are too big to fail’; ‘there is no alternative to the euro being Europe’s single currency’). Especially the euro, which has been introduced as an European peace project and which serves as a common currency for 18 fundamentally different economies, should adhere to pluralistic, democratic, and fair rules and regulations respected by all member countries.” – bto: Das ist natürlich ein netter Wunsch. “Demokratisch” wird leider meist so verstanden, dass die Mehrheit in einer Transferunion über die Höhe und Verwendung der Transfers entscheidet. Dies jedoch löst bekanntlich die Probleme der Eurozone nicht. Kauft höchstens Zeit.


Dissertation: “Corporate investment in a low interest rate euro zone environment”

Dr. Dietlinde Schumacher, Otto Beisheim School of Management, WHU Vallendar, Chair of Corprate Finance, 2014 – 2019