One in Five Listed Companies Cannot Even Cover Interest with Operating Profit

FKI Investigates 2,347 Listed Companies as Zombie Firms
Last Year, Zombie Firms Accounted for 17.5% of Total... Double the 9.3% in 2016

One out of five listed companies was found to be a marginal company that cannot even properly pay interest with operating profit.

On the 22nd, the Federation of Korean Industries (FKI) announced the results of an analysis on the proportion of marginal companies among 2,347 listed companies. As of the end of last year, 17.5% of Korean listed companies were identified as marginal companies. This is 8.2 percentage points higher than 9.3% in 2016. A marginal company refers to a firm whose annual operating profit has been less than its interest expenses for three consecutive years.

Last year, the proportion of marginal companies was 20.5% in KOSDAQ and 11.5% in KOSPI. Compared to 2016, KOSPI increased by 2.2 percentage points from 9.3%, while KOSDAQ rose sharply by 11.2 percentage points from 9.3% to 20.5%. The FKI stated, "The higher proportion of marginal companies among smaller KOSDAQ firms compared to KOSPI companies is due to their vulnerability to external shocks such as COVID-19 and high interest rates."

Temporary marginal companies, whose operating profit was less than interest expenses for only one year last year, accounted for 30.8% of the total. This means that one out of three listed companies experienced temporary management difficulties. The proportion of temporary marginal companies remained in the 20% range until 2018 (27.5%) but has stayed in the 30% range for four years since 2019 (31.9%). It was highest in 2020 (34.5%), when COVID-19 began to spread.

The industry with the highest proportion of marginal companies was business facility management, business support, and rental services (30.4%). This was followed by transportation and warehousing (25.8%), professional, scientific and technical services (25%), wholesale and retail trade (23.2%), information and communication (16.8%), manufacturing (16.4%), construction (15.5%), and finance and insurance (3.5%).

Industries with the largest increase in marginal company ratios compared to 2016 were transportation and warehousing (19.3 percentage points, from 6.5% to 25.8%), professional, scientific and technical services (18.1 percentage points, from 6.9% to 25%), and business facility management, business support, and rental services (17.4 percentage points, from 13% to 30.4%). The proportion of marginal companies in construction surged sharply in the past year (8.6% in 2021 to 15.5% last year).

The proportion of marginal companies among Korean listed firms was higher than in major countries. In 2021, the marginal company ratios in the US, UK, France, Germany, Japan, China, and Korea were 20.9% in the US, 19.2% in France, and 16.5% in Korea, in that order. The increase from 2016 to 2021 was the second largest. The US rose by 12 percentage points (from 8.9% to 20.9%), Korea by 7.2 percentage points (from 9.3% to 16.5%), and France by 6.9 percentage points (from 12.3% to 19.2%).

In 2021, Korea's temporary marginal company ratio was 30.7%, ranking second after the US (33.5%). Among the three countries with 2022 data?Korea, the US, and Japan?Korea's temporary marginal company ratio (30.8%) surpassed the US (28.2%) to take first place.

Choo Kwang-ho, head of the Economic and Industrial Headquarters at FKI, said, "Since 2020, the spread of COVID-19, the rapid rise in interest rates, and the recent economic downturn have contributed to the increase in marginal companies. It is necessary to maintain a stable financial policy stance and implement customized policies considering the characteristics of each industry."

This content was produced with the assistance of AI translation services.