Research

Dead Firms Walking: Financial Distress, Zombies, and Monetary Policy Transmission, Draft coming soon.

Standard proxies for financial constraints treat financially weak firms as a single group, implying that monetary transmission to investment is monotonic in financial weakness. Using balance-sheet data on 5 million firms in 20 Euro Area countries over 2005-2022, I separate financially weak firms into zombies, whose businesses are shrinking, and distressed firms, whose businesses are stable or expanding. I find that the nature of financial weakness matters for monetary transmission: three groups of firms imply three strengths of responsiveness. Following a contractionary monetary policy shock, all three types of firms reduce investment. Compared to healthy firms, however, distressed firms respond more strongly in reducing their investment, while zombie firms respond less strongly. Responsiveness is therefore non-monotonic in financial weakness, and pooling the two groups of distressed and zombie firms masks offsetting investment responses.  I test three mechanisms accounting for the zombie-distressed gap and find that loan evergreening shields zombie firms' credit conditions.  Zombie firms dampen aggregate monetary policy transmission: increasing the zombie share by one percentage point raises the dampening effect by roughly half a percentage point. Thus, this paper shows that firm composition shapes monetary policy transmission, and highlights a link between prudential and monetary policy.

Presentations:  Empirical Monetary Economics Workshop, Paris (forthcoming); 10th Emerging Scholars in Banking and Finance Conference, London (forthcoming); 2026 BSE Summer Forum Monetary Policy Workshop, 2026 Bank of England internal research seminar, 2025 Kiel-CEPR conference "Monetary Policy After the Inflation Surge", 2025 BoE-QMUL-Kent-Bristol workshop on Firm Dynamics, Market Structures and Productivity in the Macroeconomy, 2025-24 Cambridge Macro PhD Workshops, 2024 King's College Economics Alumni Conference

Fear the Walking Dead? Zombie Firms in the Euro Area and their Effect on Healthy Firms’ Credit Conditions, ESRB Working Paper, SUERF Summary, Financial Times Article

with Kristian Horn

Zombie firms may adversely impact healthy firms through several transmission channels. Besides real spillover effects on productivity or investment, zombies may also cause negative financial spillover effects, where zombies receive credit at more favourable conditions than healthy firms. We investigate characteristics of zombie firms in the euro area and whether they cause spillovers on healthy firms’ credit conditions, focusing on two variables: new credit and interest rates. Contrary to existing findings, our results indicate that zombie firms pay higher interest rates and receive less new credit than healthy firms. The spillover effect of zombie firms on healthy firms’ new credit is not significant. For interest rates, the spillover effect is even reversed: Zombie existence significantly lowers healthy firms’ interest rates. Zombie firms across the euro area are smaller, less profitable, and more leveraged with lower credit quality than healthy firms. Yet, they do not seem to pose significant negative externalities on the credit conditions of healthy firms. Novel loan-by-loan data from the European credit registry (AnaCredit) allows our analysis to be over a broad set of countries and firms, on a new level of granularity. This may explain the divergence of our findings from the existing literature.

Adapting to Brexit: the Response of Corporate Structures to Geopolitical Uncertainty, CEPR Discussion Paper No. 21312

with Meredith Crowley (Cambridge, CEPR), Mar Domenech-Palacios (ECB), Elisa Faraglia (Cambridge, CEPR), Chryssi Giannitsarou (Cambridge, CEPR)

Geopolitical uncertainty alters the incentives of firms to organise their corporate structure across borders, creating a distinct margin of adjustment in response to policy risk. We study this margin using the Brexit referendum as a quasi-natural experiment. We combine firm level data on parent-subsidiary links for UK and EU firms between 2011 and 2021 with measures of Brexit-related uncertainty and study changes in foreign subsidiary formation at the extensive margin. Following the referendum, there was an increase in the number of subsidiary formation from the UK into the EU, while the number of EU firms that expanded with subsidiaries into the UK dropped. UK firms establishing their first EU subsidiary after the referendum were systematically weaker ex ante than comparable firms that did so before the referendum. Increased Brexit-related uncertainty is associated with increased foreign subsidiary formation from the UK into the EU, driven primarily by small firms, alongside suggestive evidence of decreased domestic subsidiary incorporation by UK firms. We interpret these findings as evidence of a 'precautionary' foreign direct investment channel, operating through changes in the corporate structures of firms in response to geopolitical uncertainty. 

Presentations: CEBRA 2026, Econometric Society North American Summer Meetings 2026, Macroeconomic Effects of Geopolitical Shocks and Uncertainty - Ten Years from the Brexit Referendum*, MMF conference 2025*, T2M conference 2025*, `10 years from Brexit' conference at Queen Mary University*, BSE Summer Forum 2025*, `Macroeconomics and Uncertainty' workshop King's College London*, seminars* at De Nederlandsche Bank, Adam Smith Business School, Bristol University, Bank of England, Boston College, IMF, and Georgetown University, St Andrews University and University of Exeter

How Do CEOs Think the Economy Works? Evidence from Monetary Policy Expectations, Bank Underground Blogpost. Draft coming soon.

with Nicholas Bloom (Stanford University), Philip Bunn (BoE), Paul Mizen (King's College London), Gregory Thwaites (University of Nottingham) and Ivan Yotzov (BoE), using DMP firm-level survey data.

Are European Firms Financially Constrained? Draft available upon request.

with Luis Brandao Marques (IMF), Alexandra Fotiou (IMF), Richard Varghese (IMF). Featured in Staff Discussion Note joint with IMF Research Department.