Abstract
This paper attempts to identify the financial indicators differentiating companies that are insolvent or at risk of insolvency and have successfully entered into an arrangement with their creditors from those that have not. In addition, a two-factor model for predicting the odds of an arrangement has been proposed. The research was conducted using a population of companies listed on stock exchanges in Warsaw that initiated restructuring proceedings between October 2004 and 31 December 2020. Binary logistic regression was used as the research method. The research shows that the financial health of public companies in Poland, as measured by various financial indicators, has little impact on the effectiveness of a debtor–creditor arrangement. The main measure showing discriminatory features between groups of successful and unsuccessful entities is the share of short-term liabilities in total liabilities. A statistically significant influence was also recorded for the indicator showing the share of short-term receivables in the total assets. Furthermore, a statistically significant discriminatory power for both groups was recorded for the indicator showing the ratio of inventories to sales revenue. However, in this situation the selection of this measure was due to the industry diversity of the research population. The identification of these determinants and the proposed model may help courts and supervisors to divide insolvent companies into those that should be subject to liquidation or restructuring procedures at an early stage of the proceedings. Consequently, this can significantly reduce the direct and indirect costs of implementing bankruptcy proceedings.
Highlights
One of the key objectives of the European Community is to support the development of entrepreneurship and economic activity
We set out to investigate whether the financial condition of public companies in Poland before the introduction of restructuring proceedings affects the odds of concluding a debtor–creditor arrangement
1, model 2, model 3) did a specific risk factor show its significant impact on the conclusion of a debtor’s arrangement with creditors in restructuring proceedings. This shows that of the 12 financial ratios analysed (Table 3), only inventories to sales revenues, shortterm receivables to total assets and the debt structure significantly influenced the conclusion of the agreement
Summary
One of the key objectives of the European Community is to support the development of entrepreneurship and economic activity This area includes, inter alia, such issues as the implementation of the second chance policy, measures to reduce the stigma of insolvent entrepreneurs, simplification and improvement of effectiveness of bankruptcy and restructuring procedures. The economic impact of legal and administrative procedures for licensing, business transfers and bankruptcy on entrepreneurship in Europe (European Commission 2011a); Report of the Expert Group: A Second Chance for Entrepreneurs: Prevention of Bankruptcy, Simplification of Bankruptcy Procedures and Support for a Fresh Start (European Commission 2011b); Commission Recommendation of 12 March 2014 on a new approach to business failure and insolvency (European Commission 2014); Entrepreneurship 2020. Reigniting the entrepreneurial spirit in Europe (European Commission 2013); Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt (2019)
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