Eliminating the Effects of the Companies Insolvency Risk – A Model Approach

 

Abstract

Managers around the world identify risk of liquidity problems as the primary barrier of their decisions. In the global economy, in the turbulent environment, the effects of companies insolvency risk lead to many operational and strategic problems also because of contagion effect. Therefore, it is important to study the phenomenon of insolvency, determinants that shape it as well as seek opportunities to reduce the risk of this problem. It is necessary to find an answer how to eliminate the negative effects of companies insolvency risk using a model approach? The aim of the study was to identify the determinants that affect the risk of insolvency of companies in Poland as well as propose a model of the effects of companies insolvency. We propose models based on the profiles of risk factors and the actions as well as instruments to successfully manage the risks of default. We used Principal Components Analysis. It can therefore be concluded that the issue of appropriate debt management, as well as the need for synchronization of receipts and expenditure, which should secure the current payments in a short run is crucial in identifying and reducing the risk of insolvency, in a short term  (in relation to all groups of companies). However, in the longer term, consideration should be given to the different factors that can allow the identification of the risk of insolvency, which may further allow the entrepreneurs to make quick response, or spread out over time the operations (e.g. restructuring) and thus allow to avoid the insolvency.

Keywords: Insolvency, Risk, Company

Jel Codes: G, G3, G32

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