Nottingham University Business School
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Sadegh Javaheriafif

BA in Accounting, Financial Management and Economics, MSc in Finance

Room: B34 (South Building)
Tel: +44 (0) 115 8466378

Current Status: Completed
Year of Registration: 2012
Expected Completion Date: /09/2015

Primary Funding Source:
NUBS Scholarship

Research Topic:
Zombie firms - a post-crisis phenomenon

Research Details:
Among the external factors affecting firms' capital structure, the overall economic condition and its impact on possible firm-specific determinants of capital structure has not received much of attention in the theoretical literature and empirical studies are also inconclusive. During crises, illiquidity of capital markets, lower earnings, and higher perceived risks by investors, lead to higher dependence of firms to external finance and in particular debt financing. Thus, a firm that due to its financial characteristics is perceived as an eligible candidate by lenders is more likely to have access to debt capital markets, raise external finance via debt issues (both bank loans and bonds) and survive the economic downturn.

Furthermore, the empirical studies of capital structure have always assumed that all firms are in competition and non-technically-bankrupt and failed to address the issue of so-called "zombie" firms. A 'zombie' is a deeply financially distressed company that is only generating enough cash to pay its operational costs and bills. Any profit made is used to service the interest on its debts and is not reinvested. These businesses are in danger of total bankruptcy since they have no financial flexibility and, if circumstances change for the worse (such as an increase in the interest rate), they will not be able to cope with the increased costs and will default. These zombie firms affect the skewness of debt capital distribution as they capture a proportion of the total available capital and resources used to recapitalize such firms which could have been used more efficiently elsewhere.

Research Supervisor/s: David Newton and Richard Simper

Division: Industrial Economics and Finance

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Nottingham University Business School

Jubilee Campus

telephone: +44 (0) 115 846 6602
fax: +44 (0) 115 846 6667