BOK Study Finds 1-Point Rise in Marginal Firms Cuts Healthy Investment by 0.18 Points
Updated
Updated · asiae.co.kr · Jun 15
BOK Study Finds 1-Point Rise in Marginal Firms Cuts Healthy Investment by 0.18 Points
2 articles · Updated · asiae.co.kr · Jun 15
Summary
A 1 percentage-point rise in marginal firms’ asset share within an industry cuts healthy firms’ investment growth by 0.17-0.18 points and employment growth by 0.14-0.17 points, with effects lasting two to three years.
Bank of Korea researcher Lee Kyungtae said the congestion effect also drags on productivity, profitability and hiring, hitting small non-audited firms and non-manufacturing sectors hardest.
The study defined marginal firms as companies with interest coverage below 1 for three straight years; as of 2023, audited marginal firms held 4.7% of corporate assets versus 2.3% for non-audited firms.
Eliminating 25% of marginal firms would raise total factor productivity by 0.2% and value-added by 0.35%, though about 0.3% of healthy firms could still be pushed into distress through business links.
Lee said the findings support timely liquidation of firms with little recovery prospect, alongside safeguards to stop restructuring stress from spreading to otherwise healthy companies.
Is the proposed cure for Korea's 'zombie firms'—mass liquidation—worse than the disease for healthy companies?
If the core economic metric justifying this plan is a 'myth,' is Korea's economic strategy built on a house of cards?
The Economic Drag of Zombie Firms in South Korea: Policy Solutions for a 0.4% Productivity Gain
Overview
The Bank of Korea's 2026 study highlights the persistent problem of marginal or 'zombie' firms in South Korea, showing that their continued presence drags down economic productivity. The report reveals that if 25% of these less productive firms exited the market, total factor productivity would rise by 0.2% and value added would increase by 0.35%. If half of the marginal firms left, these gains would double. This demonstrates that removing unproductive firms could significantly boost the economy, making restructuring a key step toward greater efficiency and growth.