#ZEWPodcast: How Are Insolvencies Connected to Zombie Firms?


ZEW Podcast with Simona Murmann

In general, insolvencies occur particularly often in times of crisis. However, this was not the case during the Covid-19 pandemic, where the number of insolvencies actually declined. In contrast, the current energy crisis is leading to an increasing number of insolvencies. This raises a series of other questions: Which types of companies are affected? What are the causes? How can we create a database that will help us develop a strategy for appropriate policy action? In the latest episode of the #ZEWPodcast, innovation economist Simona Murmann sheds light on these issues.


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“The most common reason for filing for insolvency is illiquidity,” explains Dr. Simona Murmann, researcher at ZEW’s “Economics of Innovation and Industrial Dynamics” Unit. This is the case when a firm that is unable to pay 90 per cent of its due debts or current financial obligations within three weeks. The firm is then legally required to register as insolvent. Why this is necessary becomes apparent when you realise that “behind every insolvent firm there are numerous creditors who have lent money to the firm.” The German insolvency system aims to grant all creditors their due share of the insolvency estate – ultimately preventing them from exerting pressure on companies individually during a crisis and triggering adverse processes.

Insolvency paradox during the Covid-19 crisis

At the beginning of the Covid-19 crisis, Murmann initially predicted around 25,000 new insolvency filings for 2020. Paradoxically, the number of insolvencies even fell below the level of economically strong years. “There are two reasons that explain this phenomenon,” says the innovation economist. The suspension of the obligation to file for insolvency on the one hand and the granting of state aid on the other helped to save viable companies from going bankrupt through no fault of their own. Small businesses and those that were already struggling before the pandemic benefited most from these measures. The problem that arises at the macroeconomic level is that resources such as employees or loans are tied up in unprofitable firms. This makes them unavailable to firms that could use the potential of these resources more efficiently. The phenomenon known as “zombification” can become an “obstacle to economic growth” if it occurs on a large scale.

Energy crisis poses a new challenge

Despite the pandemic phasing out and the end of the insolvency moratorium in spring 2021, many firms are once again facing major challenges. Due to current inflation and the energy crisis, production is becoming more expensive – an effect that is often also reflected in product prices. More difficult sales conditions and changing consumer decisions are further factors that slow down the implementation of transformation processes in firms. “We are already starting to see a slight increase in the number of insolvencies,” remarks the innovation economist. Policymakers now need access to the latest available data possible in order to respond better and faster than in the past. Murmann and her fellow ZEW researchers contribute to solving this puzzle with their own research project. In a technically complex process, basic information and insolvency texts are extracted from the web and stored, and then linked to corporate data such as the commercial register number or the name of the owners. The economists use a method called web scraping to gather the necessary data to complete “a detailed structural analysis of the insolvencies” for the previous month. This includes information on the age, sector or energy intensity of the recorded firms. Murmann emphasises that this method is “clearly valuable” given the broad spectrum of economic policy data and analyses.