Abstract
Purpose – This paper aims to analyze the industry characteristics and the strategic behavior of companies that affect zombie companies. Theoretical framework – The study was based on the structure-conduct-performance paradigm derived from industrial organization theory, because it allows us to explain a firm’s results through behavior influenced by external and internal factors. Design/methodology/approach – For the data analysis, the corrected standard errors technique was used on a data set of 99 companies registered in the Mexican Stock Exchange during the period from 2013 to 2017. Findings – Among the main findings, it is evident that strategic behavior affects zombie companies. On the other hand, we found that market competitiveness negatively affects zombie companies, while barriers to entry positively affect them. The results allow us to identify similarities with and differences from other zombie firms in the world, based on the Latin American environment and its institutional policy. Practical & social implications of the research – Zombie firms have a negative connotation; however, they may become necessary to keep businesses operational in developing countries. Also, the study may provide a background to regulations on firm bankruptcy. Originality/value – The most important contribution is that this is a pioneering investigation that analyzes strategic behavior and its effect on zombie companies. Also, this may be one of the first studies to examine these companies in Latin America, making it possible to identify differences from zombie firms in the rest of the world due to environmental elements such as institutional policy. Keywords – zombie firms, strategic behavior, industry effect, panel-corrected standard errors.
Highlights
Zombie firms are organizations that continue to operate through subsidies or support in the form of continuous loans, overvalued projects, or concessions in interest payments (McGowan, Andrews, & Millot 2017b; Tan, Huang, & Woo, 2016)
The values of the means are compared between the groups, resulting in significant differences in strategic behavior and barriers to entry
This paper is in line with the current literature that attributes greater weight to factors related to business management as the most important causes of the zombie phenomenon
Summary
Zombie firms are organizations that continue to operate through subsidies or support in the form of continuous loans, overvalued projects, or concessions in interest payments (McGowan, Andrews, & Millot 2017b; Tan, Huang, & Woo, 2016). The support is given because bankruptcy involves social and economic costs; as a result, official institutions implement protectionist policies and survival actions to protect such firms and avoid these problems (Campa & Camacho, 2014). This means that zombie firms depend on other institutions because their activities, results, and actions are not sufficient to be able to do without support, entering a vicious cycle (Amato & Fantacci, 2016; Hoshi, 2006; Uchida et al, 2015). The main contribution of these early works was in finding that zombie firms negatively affect the markets because they reduce the attractiveness of an industry by using financial and human resources that regular companies could use (Hoshi, 2006; McGowan et al, 2017b)
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