Are insolvency proceedings opened too late? The case of Germany, Croatia and Slovakia

Abstract

Purpose: The aim was to analyze insolvency proceedings in Germany, Croatia and Slovakia and answer the research question whether insolvency proceedings are opened too late in the observed countries and how this issue can be explained. Methodology: Comparative analysis of insolvency systems in Germany, Croatia, and Slovakia was con-ducted. Furthermore, the financial profile (liquidity) of firms in pre-insolvency and insolvency proceedings in Germany, Slovakia and Croatia was analyzed and respective results were compared with data on government effectiveness and the rule of law in the observed countries. The one-way ANOVA was performed to test the differences in liquidity among companies that initiated pre-insolvency and insolvency proceedings.Results: The results indicate that German companies respond to signs of crises earlier in comparison to Croatian and Slovakian companies and these differences cannot be explained only by criminal law measures which are not equally effective across jurisdictions, but they depend to a large extent on government effectiveness and the rule of law in a country.Conclusion: The results show that despite the similarities in the civil law frameworks, insolvency proceedings in Croatia and Slovakia are still initiated on average much later than in Germany. Moreover, according to the results, criminal law sanctions against the late initiation of insolvency proceedings can have preventive effects. However, while they can increase the number of timely insolvency proceedings, their effective-ness is still limited by the efficiency of the judicial system measured by the strength of institutions and their consistent application.