So-called ‘zombie' firms that weigh heavily on productivity are on the rise, but the UK has the best record in preventing their spread.
That's according to a recent report from the Organisation for Economic Co-operation and Development (OECD), which looked at how the rise of zombie firms is sapping productivity across its member states.
Zombie companies are defined as struggling companies aged over ten years who cannot cover debt interest payments with their profits for three straight years. They redirect investment away from innovative rivals, push up wages, and undermine productivity, according to the report, which added that an economy's insolvency framework is a key factor in reducing zombie numbers and investment.
According to the report, which was flagged up by UK insolvency trade body R3, the share of zombies as a percentage of the wider business population in eight OECD countries (Belgium, Finland, France, Italy, Korea, Spain, Sweden and the UK) rose from about three to about five per cent between 2003 and 2013.
The UK's insolvency and restructuring framework is more effective than those in all other OECD members at preventing a build-up of zombie companies, the report found.
The UK "personal costs associated with entrepreneurial failure and barriers to restructuring are low, while there is also a number of provisions to aid prevention and streamlining", notes the report.
R3 deputy vice-president Duncan Swift said: "Zombie companies are a big part of the productivity puzzle plaguing Western economies, so it's encouraging the UK's insolvency and restructuring framework is recognised as the best positioned to tackle problems caused by these unproductive companies.
"The insolvency and restructuring framework is a fundamental pillar of any economy. It makes sure resources - whether investment, people, or ideas - are being used productively and aren't stuck in stagnating companies. The profession's work keeps an economy competitive, helps new businesses thrive, and helps older companies adapt."
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