Japan Data

Zombie Companies Still on the Rise in Japan Due to Pandemic Loans


The number of zombie companies operating in Japan despite being in a state of bankruptcy has been rising since the COVID-19 pandemic.

Since the COVID-19 pandemic, there has been an increasing number of “zombie companies” operating in Japan despite being in a state of bankruptcy. The Bank for International Settlements defines zombie companies as being at least 10 years old, and having an interest coverage ratio (earnings divided by interest expenses) of less than 1 for at least three consecutive years. Based on these standards, Teikoku Databank calculated that the rate of zombie companies in fiscal 2022 was 17.1%, or 251,000 of the total number of firms in Japan.

After the global financial crisis began in 2008, many companies were able to continue operating due to the introduction of the Small and Medium Enterprise Finance Facilitation Act in 2009, which meant that, as of 2011, the number of zombie companies had risen to 273,000. Although the number gradually decreased after that, levelling out at around 140,000 from 2016, it has been on the increase again since 2020.

The effectively interest-free, unsecured “zero-zero loans,” implemented as an economic measure during the COVID-19 pandemic, supported small and medium-sized businesses, but at the same time prolonged the existence of companies that were already zombies. Teikoku Databank drew attention to the fact that with pandemic support measures likely coming to an end, many companies, unable to improve their performance, are giving up on continuing their business.

Zombie Companies in Japan

By industry, the highest percentage of zombie companies was 27.7% in retail, followed by 23.4% in transportation/communication, and 17.8% in manufacturing. Compared to fiscal 2021, the percentage of zombie companies had risen in all industries.

Zombie Companies by Industry

Businesses with lower numbers of workers had a higher tendency to be a zombie company. Those with 5 or fewer employees had the highest percentage with 25.1%, and close behind were those with 6–20 employees at 18.7%. On the other hand, only 2.8% of businesses with more than 1,000 workers were zombie companies.

Zombie Companies by Number of Employees

Looking at the percentage by region, Tōhoku and Chūgoku both had more than 20%. In the case of Tōhoku, even though more than a decade has passed since the 2011 Great East Japan Earthquake, companies still continued to be burdened with debts from borrowing, due in part to the effects of various financial support schemes. Kantō had the lowest percentage of zombie companies at 14.8%, while Tokyo had the lowest by prefecture with 12.9%.

Percentage of Zombie Companies by Region

(Translated from Japanese. Banner photo © Pixta.)

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