Are Zombie Companies in Mexico the same as in the rest of the World?

The study was based on the structure-conduct-performance paradigm derived from industrial organization theory, because it allows us to explain a firm’s results through behavior influenced by external and internal factors.

Design/methodology/approach

For the data analysis, the corrected standard errors technique was used on a data set of 99 companies registered in the Mexican Stock Exchange during the period from 2013 to 2017.

Findings

Among the main findings, it is evident that strategic behavior affects zombie companies. On the other hand, we found that market competitiveness negatively affects zombie companies, while barriers to entry positively affect them. The results allow us to identify similarities with and differences from other zombie firms in the world, based on the Latin American environment and its institutional policy.

Practical & social implications of the research

Zombie firms have a negative connotation; however, they may become necessary to keep businesses operational in developing countries. Also, the study may provide a background to regulations on firm bankruptcy.

Originality/value

The most important contribution is that this is a pioneering investigation that analyzes strategic behavior and its effect on zombie companies. Also, this may be one of the first studies to examine these companies in Latin America, making it possible to identify differences from zombie firms in the rest of the world due to environmental elements such as institutional policy.

Keywords
zombie firms; strategic behavior; industry effect; panel-corrected standard errors

Dimension	Measure	Interpretation
Orientation towards innovation (OTI).	$\frac{\begin{matrix} M a r k e t i n g, m a i n t e n a n c e, a n d \\ a d m i n i s t r a t i v e e x p e n s e \end{matrix}}{S a l e s}$	High value for proactive behavior / Low value for defensive behavior.
Production efficiency (PE)	$\frac{S a l e s c o s t}{S a l e s}$	High value for proactive behavior / Low value for defensive behavior.
Sales growth rate (SGR)	${\frac{I n i t i a l s a l e s v a l u e}{F i n a l s a l e s v a l u e}}^{\frac{1}{# o f y e a r s} .} - 1$	High value for proactive behavior / Low value for defensive behavior.
Capital intensity rate (CIR)	$\frac{V a l u e o f p r o p e r t y, p l a n t, a n d e q u i p m e n t}{T o t a l a s s e t s}$	Low value for proactive behavior / High value for defensive behavior.

Variable	Hypothesis/Effect	Measure	Sign that supports the hypothesis
Strategic behavior	Positive/Negative	Strategic behavior proxy	+/-
Market competitiveness	Negative	Relative market share	+¹
Barriers to entry	Positive	Investment cost ratio	-

Sector	Zombie Firms	Total Firms	Percentage
Energy	1	1	100%
Industrial	14	31	45%
Material	8	22	36%
Telecommunications	4	7	57%
Health	2	4	50%
Frequent Consumption	2	16	12.5%
Non-Frequent Consumption	7	18	38.9%
Total	38	99	38.9%

Industry	Strategic behavior		Market competitiveness		Barriers to entry
Industry	Non-Zombie	Zombie	Non-Zombie	Zombie	Non-Zombie	Zombie
Energy	5	8.25	1	1	2.8332	3.0332
Industrial	7.95	10.55	0.0185	0.0398	1.3688	1.275
Material	6.31	8.45	0.0324	0.052	0.7569	1.086
Frequent Consumption	7.41	9.96	0.0417	.0632	0.5958	0.5123
Health	8.87	8.25	0.2473	0.2499	0.5141	0.8912
Telecommunications	7.72	9.38	0.1251	0.1516	0.6858	0.8595
Non-Frequent Consumption	7.2	10.52	0.1876	0.0824	0.91008	1.5046

	Model 1	Model 2	Model 3	Model 4
Strategic Behavior	-0.0358*** (0.0108)	-0.0358*** (0.0106)	-0.0279** (0.0106)	-0.02804^*** (0.104)
Market Competitiveness	0.1179 (0.2161)	0.1217 (0.1254)	0.4031*** (0.1068)	0.4039*** (0.1059)
Barriers to Entry	-0.0557 (0.0151)	0.0097 (0.0359)	0.1082** (0.0482)	0.01040^** (0.0468)
Constant	0.4801*** (0.1723)	0.5296*** (0.1728)	-0.9989*** (0.2984)	-0.9357*** (0.2909)
Firm Age		-0.0008*** (0.0002)		-0.0008** (0.0002)
Firm Size			0.0698*** (0.01437)	0.0691*** (0.014)
R²	0.1203	01252	0.1314	0.173
Model Sig.	73.77*** (0.000)	73.37*** (0.0000)	140.35*** (0.0000)	144.04*** (0.000)

Hypothesis	Result	H0 rejection
H1: Strategic behavior effects on zombie companies.	-0.028^***	Yes
H2: A higher level of market competitiveness discourages zombie firms.	0.4039***	Yes
H3: A higher level of barriers to entry encourages zombie firms.	0.0104^**	No

Dimension	Measure	Interpretation
Orientation towards innovation (OTI)	$\frac{\begin{matrix} M a r k e t i n g, m a i n t e n a n c e, a n d \\ a d m i n i s t r a t i v e e x p e n s e \end{matrix}}{S a l e s}$	High value for proactive behavior / Low value for defensive behavior.
Production efficiency (PE)	$\frac{S a l e s c o s t}{S a l e s}$	High value for proactive behavior / Low value for defensive behavior.
Sales growth rate (SGR)	${\frac{I n i t i a l s a l e s v a l u e}{F i n a l s a l e s v a l u e}}^{\frac{1}{# o f y e a r s} .} - 1$	High value for proactive behavior / Low value for defensive behavior.
Capital intensity rate (CIR)	$\frac{V a l u e o f p r o p e r t y, p l a n t, a n d e q u i p m e n t}{T o t a l a s s e t s}$	Low value for proactive behavior / High value for defensive behavior.

Fundação Escola de Comércio Álvares Penteado Fundação Escola de Comércio Álvares Penteado, Av. da Liberdade, 532, 01.502-001 , São Paulo, SP, Brasil , (+55 11) 3272-2340 , (+55 11) 3272-2302, (+55 11) 3272-2302 - São Paulo - SP - Brazil
E-mail: rbgn@fecap.br

Acompanhe os números deste periódico no seu leitor de RSS

[1] Responsible Editor:

Prof. Dr. Eduardo Armando