Abstract
The Covid-19 induced economic crisis has significantly affected almost all businesses from nearly every sector, causing severe financial problems, lack of cash assets, and decrease of revenues. In this context, the economic entities were forced to look for adjustment and rescue solutions of their activities. One possible solution for the recovery and reorganization of economic entities’ activities is demerger. This paper evaluates the impact of demerger upon the sustainable development of economic entities in terms of economic efficiency and financial performances. To achieve this goal, a statistical analysis of profitability ratios before and after the demerger, as well as a structural analysis of 268 demerger projects for the April 2012–April 2021 period, were performed. The results attest there are no significant differences between the ex-ante and ex-post financial performances. However, demerger seems to have a positive effect upon analyzed companies helping them to overcome economic hardships, rethink their business strategies, and continue their activity in the medium and long-term time horizon.
Highlights
The main objective of this paper is to evaluate the impact of demerger upon the sustainable development of economic entities in terms of economic efficiency and financial performance
The analysis reveals a variety of reasons which determine companies to subject themselves to a demerger process
To ensure results’ robustness, a statistical analysis of ROA and ROE was performed for the ex-ante and ex-post demerger sub-periods using the SPSS statistical software
Summary
To cope with economic hardships exacerbated by the sanitary crisis and avoid bankruptcy, economic entities need to look for solutions to continue their activities and develop sustainably. One of the main measures economic entities can adopt to protect their businesses in the context of the pandemic is restructuring. Demerger represents a type (a mechanism) of restructuring, a strategy for rescuing entities in financial difficulties, and implicitly an instrument supporting the sustainable development of businesses. The partial division (demerger) represents a reorganizing operation and “implies the secession of part of a company’s wealth/patrimony, which still continues to exist, and in transferring this part to one or more legal entities which already exist or they are created in this way”. 227/2015 [1], subsequently added and modified and by the Law of Economic Societies no. The dividing company is called assignor, whereas the companies already existing or which are created in the demerger process are called beneficiaries
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