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NGBANDA_88741800_2026.pdf
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- The persistence of zombie firms, companies that remain active despite being unable to generate sufficient profits to service their debt, has become a major concern in advanced economies. While a growing literature documents the macroeconomic consequences of zombie firms, little is known about how zombification differs within countries and how institutional environments shape firm survival and innovation. This thesis addresses this gap by analysing regional disparities in zombie firm prevalence and persistence between Flanders and Wallonia in Belgium and by examining their implications for innovation. Using firm-level data from Bel-First, the empirical strategy combines logistic and linear panel regressions to test zombie firm detection, regional prevalence, innovation effects, and subsidy-driven persistence. The analysis shows that firms located in Wallonia are more likely to be classified as zombie than comparable firms in Flanders, pointing to structural regional differences in firm vulnerability. Moreover, the results indicate that public subsidies are strongly associated with persistence of zombie firms, however, their effects are found to be stronger in Flanders than in Wallonia, suggesting that the design and implementation of support of support instruments matter more than their volume. Finally, industry-level zombie prevalence does not significantly reduce firm-level innovation once firm capabilities are taken into account, this implies that in Belgium innovation remains largely driven by firm-specific capabilities and access to international capital rather domestic competitive distortions. Overall, the findings show that regional institutions and financial support mechanisms play a central role in shaping zombie firm dynamics in Belgium, while the innovation consequences are more limited than commonly assumed.