The impact of corruption on corporate insolvencies in the Central and Eastern Europe countries

Abstract

The first studies on corporate insolvencies in developed countries date to the early 20th century. Nevertheless, due to the geopolitical situation and the introduced economic system, in the Central and Eastern Europe countries, the institution of bankruptcy began to function and became the subject of researcher interest in the first half of the 1990s. However, it is important to conduct research into the bankruptcy evolution and the general bankruptcy causes. In almost all cases, the bankruptcy of a company is determined by the simultaneous effect of several causes, which influence different aspects of the company's business. Therefore, it is worthwhile to analyse the impact of corruption on bankruptcy phenomenon. Corruption is a phenomenon widespread almost all over the world, but its level varies from country to country. In addition, there are very large discrepancies from one geographic region to another. If in some countries the impact of corruption is not obvious, in other countries the effects on poverty can be devastating. The effects of corruption on the economic growth have been extensively studied in the literature. To achieve the purpose of the research, we analysed the link between the level of corruption and the corporate insolvencies in the Central and Eastern European countries. Based on the cross-country findings of this paper a lesson for the Central and Eastern European countries can be crucial. It has been identified that the most significant drivers of corporate insolvencies among all the countries in the data set are corruption and lack of freedom of expression, freedom of association, and a free media. These two factors have to be taken into consideration by EU that is actively trying to develop the European framework for restructuring and bankruptcy management.