Identification of Zombie Firm and Understanding Its Capital Structure Mix

Zombie firms cause enormous harm to the economy; therefore, it is crucial to understand the phenomenon. The present study identifies zombie firms from a large sample of all non-financial firms in India. It analyses the prevalence of zombie firms over time and their distribution across various industries using a three-digit National Industrial Classification (NIC) classification. Furthermore, this study investigates the causes of the emergence of zombies and evaluates the effectiveness of various re-structuring measures for resolving zombie firms. The study empirically analyses the capital structure composition of zombie firms to understand the mere reason for their formation. Using data for 2000–20, our analysis reveals that around nineteen per cent of Indian firms show the characteristic of zombie firms, and their capital structure is highly skewed toward debt capital-which makes the already loss-making firm more vulnerable as they struggle to service their debt out of the revenue they earn. To a certain extent, the conclusion of the formation of zombie firms would be conducive to adjusting the direction and intensity of further research.