The distorted entrepreneurial decision-making of zombie firms

Abstract

Quantitative easing policies have resulted in a significant increase in credit, posing a threat to developed countries' economic stability. This research aims to analyze the impact of distorted interest rates and readily available capital on creating “zombie firms” in the context of Mises–Hayek's malinvestment theory. The study highlights the importance of understanding these factors to prevent firm failure and recommends limited intervention in interest rates and capital availability before crises. Additionally, the study advocates for implementing flexible insolvency regimes for insolvent firms post-crisis to mitigate the risk of corporate zombification.