An analysis shows that the proportion of zombie firms in South Korea—companies unable to cover their interest expenses with their operating profits—is growing faster than in other major economies.

According to the Korea Economic Research Institute (KERI) on Tuesday (June 30), the share of zombie firms among listed companies in Korea reached 27.6% last year, an increase of 15.8 percentage points from 11.8% in 2017.

A zombie firm is defined as a company that has failed to generate enough earnings before interest and taxes (EBIT) to cover its interest expenses (an interest coverage ratio of less than 1) for three consecutive years.

During the same period, the share of zombie firms in the United States rose by 9.5 percentage points to 30.7%.

The increases in other countries were as follows: France (up 5.5 percentage points to 26.4%), the United Kingdom (up 2.8 percentage points to 22.4%), Germany (up 2.3 percentage points to 12.9%), and Japan (up 1.9 percentage points to 3.6%).

Regarding the choice of 2017 as the starting point for the comparison, KERI explained that including the 2015–2016 period could distort the results due to factors such as the Chinese stock market crash, volatile raw material prices, and Brexit.

The proportion of temporary zombie firms, which had an interest coverage ratio of less than 1 in a single year, rose from 30.4% in 2017 to 43.9% in 2025 in South Korea.

This figure is similar to that of the United States (44.0%) and higher than those of France (40.1%), the United Kingdom (36.7%), Germany (27.0%), and Japan (9.8%).

By domestic market, the share of zombie firms in the KOSDAQ market was 32.6% last year, approximately double that of the KOSPI market (16.7%).

The growth rate compared to 2017 was also 2.7 times higher in the KOSDAQ (up 19.5 percentage points) than in the KOSPI (up 7.1 percentage points).

By industry, the arts, sports, and leisure services sector had the highest share of zombie firms at 60.0%.

This was followed by professional, scientific, and technical services (36.8%), wholesale and retail trade (36.4%), information and communications (32.5%), manufacturing (25.6%), and construction (23.6%).

The largest increases were seen in professional, scientific, and technical services (up 30.0 percentage points), information and communications (up 19.6 percentage points), wholesale and retail trade (up 18.6 percentage points), and manufacturing (up 14.4 percentage points).

Lee Sang-ho, head of the Economic Division at KERI, analyzed the situation, stating, "Business conditions for major industries, excluding semiconductors, are deteriorating due to a combination of factors, including worsening trade conditions, rising costs for exchange rates, raw materials, and labor, as well as sluggish domestic demand."

(Photo: Yonhap News)