REITI: Did COVID-19 create more zombie firms in Japan?

REITI: Did COVID-19 create more zombie firms in Japan?. “With low levels of firm exits, it appears that Japanese firms have weathered the pandemic. However, aggregate firm exit rates mask developing corporate vulnerabilities due to: (i) weaker cleansing mechanism with the decline in the exit of unhealthy firms; and (ii) increased borrowing, especially in long-term debt. The pockets of vulnerabilities are concentrated in sectors most affected by the pandemic, with a sharp increase in the number of firms with solvency issues (‘zombie firms’), which would have otherwise been healthy firms without the pandemic.”

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