Financial threat profiles of industrial enterprises in Poland

Abstract

Research background: The nature of bankruptcy has been the subject of interest for economic theories, both positive?identifying relationships between bankruptcy and other economic categories ? and normative, shaping the rules for the proper regulation of bankruptcy. In turn, the functioning of an enterprise in conditions of risk, financial threat, and finally a crisis that could lead to bankruptcy, are of interest to management. The interpenetration of these two dimensions provided the motivation for this study, which assumes a bottom-up approach: from individual results to summarised multi-sectional comparisons.
 Purpose of the article: The purpose of the research was to evaluate the level, directions of change, and structure of the degree of financial threat in industrial enterprises. The period under analysis was 2007?2018 and the whole population of industrial enterprises in Poland (15,999 entities) was examined. The enterprises were small and medium-sized enterprises (SMEs) as well as large enterprises (LEs). The financial analysis covered macro-, meso-, and microeconomic levels.
 Methods: The analysis was conducted using a comparative approach and financial threat predictions obtained from the original multivariable logit model. Heat maps were used to evaluate the intensity of changes in financial threat. The displacement of objects in structures was studied, ordered, and classified. Four normative standards of threat scenarios were defined and then used to evaluate similarities in the profiles of the structures examined, using the similarity measure. The ranking and its variability were analysed in the assessment of profiles.
 Findings & value added: As the result of the research, properties were described and profiles were determined for the structures in terms of the degree of threat and its correlation with rate of bankruptcy and creating added value. The originality of the research comes from the use of novel dynamic logit models. The added value is a unique study on the entire population of industrial enterprises in the national economy and a methodology for identifying financial threat profiles and their similarity at subsequent aggregation levels (the micro-, meso-, and macro-levels). This made it possible to derive patterns and regularities for economic policy and guidelines for business management.

Corporate Debt and Earnings Management: Evidence From Slovakia

“…Growing values of the insolvency ratio indicate problems with primary insolvency, corporate revenues decrease, additional costs related to fees from contracts and interest rates increase, and the reputation of an enterprise is jeopardized. An enterprise becomes an unsuitable partner for its potential creditors, and there is also a risk of financial distress (Kaczmarek et al, 2021;Krulicky & Horak, 2021). Enterprises tend to hide their financial problems and improve debt-to-equity ratios by aggressive accounting methods (Uyar, 2014;Tosun & Senbet, 2020).…”

Management of Operational Risk in the Context of Financial Performance of SMEs

“…The financial analysis acts primarily as feedback on what the enterprise has achieved and what assumptions it has managed to fulfil, and therefore it is obvious that it forms an integral part of the financial management of the entire enterprise [45]. The main purpose of financial analysis is to provide a methodical apparatus that, through available resources, enables a comprehensive evaluation of the financial situation and assessment of the financial health of the enterprise [46]. Kotaskova et al [47] define the financial situation as financial performance, which is measured mainly by profitability, and the financial position of the enterprise, which reflects the risks associated with the way the enterprise is financed.…”

Valuation of Embedded Options in Non-Marketable Callable Bonds: A New Numerical Approach

“…As a result, risky debt issuers might "pass up" positive net present value projects because managers assume that bondholders will benefit more than shareholders will. Consequently, the firms with high default risk will suffer from the lack of positive NPV projects (Panova, 2020;Kaczmarek et al, 2021;Valaskova et al, 2021aValaskova et al, , 2021bKaras & Režňáková, 2021). Bodie and Taggart (1978) and Barnea et al (1980) argue that the underinvestment problem can be resolved with callable bonds.…”