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Finance Assignment: An Article Review on Bankruptcy Risk


Task: You are required to source latest article with regards to issues in Accounting and Finance for Managers from business journals, databases or magazines. You are required to work individually and submit your critique/review between 4 – 5 pages (Max 1000 word count) long.


Lukason, O. and Camacho-Miñano, M.D.M., 2019. Bankruptcy risk, its financial determinants and reporting delays: do managers have anything to hide? Risks, 7(3), p.77.

Article identification

  1. Title of the article: Bankruptcy risk, its financial determinants and reporting delays: do managers have anything to hide?
  2. Author(s): Lukason, O. and Camacho-Miñano, M.D.M.
  3. Title of the journal: Risks
  4. Year of publication: 2019

1.0 Introduction
Main topic of discussion
This article by Lukason & Camacho-Miñano (2019) explored herein finance assignment showcases the element of bankruptcy risk and its plausible financial determinants. The authors conducted a study on 700,000 Estonian firms to find out that the sorts of reporting delays that could be connected with the bankruptcies of the firms. But this sort of phenomenon varies based on individual scenarios of the businesses as the working pattern of the bigger organisations is different from that of its smaller counterparts. But the article tries to convey that in case of reporting delays, there are higher instances of bankruptcies while the timely presentation of the reports could be suitable to prevent such situations.

Definition of key terms
The article comes up with several financial terms like the ‘bankruptcy risk’ which determines the susceptibility of the financial institutions to the threats of bankruptcy. It also discusses ‘financial ratio’ which determines the quantitative aspect of the financial figures in proportions and percentages for a better understanding. The article comes across terms like ‘reporting delays’ showing the lacklustre mindset of the firms in the timely presentation of the facts and information.

Objectives of review
The primary objective of the article review is to understand whether the information shared by the authors are relevant to the business scenario. It also strives to understand whether such information is based on proper scientific evaluation or just an estimation. The article review also explores whether such information could be used for research purpose or the businesses could use to improve their decision making.

2.0 Summary
Scope of the article
Through this article, Lukason & Camacho-Miñano (2019), tried to interlink the elements of bankruptcy risk and information disclosure. Bankruptcy comes along with severe business and economic consequences for the firm which leads the organisations to perform poorly (Fracassi, 2016). The article cites relevant financial ratios to determine the liquidity, leverage, and profitability of the businesses and adjudge whether it runs the risk of bankruptcy.

Main points discussed
The article rightly points out the causes of reporting delays like late filing of the books of account. It might be attributed to the intention of the managers to conceal the real truth of the financial distress faced by the firms (Malmendier, 2018). The government authorities try to level up the situation by asking for minimal disclosures of the financials to contemplate effective financial decisions.

The article tried to establish a connection between bankruptcy risk and reporting delays and it is found that those firms having financial issues generally tend to reporting delays (Lukason & Camacho-Miñano, 2019). The main aspect of determination has been the financial ratios of liquidity, profitability, and leverage situations. Those firms having bankruptcy threats try to delay the reports intentionally to hide the matters, precisely to come out of the mess for the time being but does not seems to be effective in the long-run.

The article by Lukason & Camacho-Miñano (2019), concludes that as the organisation finds a way to delay the presentation of its financial reports, there are higher instances of financial decay in the firm. The Estonian government tried to control the matter by setting legal bindings to present the financials within a specified deadline but it hardly makes any difference to the practising firms.

3.0 Critique the article
The article aims to explore the relationship between reporting delay and bankruptcy risk in businesses across Estonia. The abstract of the article establishes the relationship between the elements. It shows the way the firms engaged in reporting delays are susceptible to bankruptcy risks as they struggle with difficulties in managing their finances (Brealey, et al., 2020). The study rightly used the financial ratios to make the position understandable for a layman as well. It definitely attempts to empower the stakeholders as the creditors could use such information to decide whether to grant credit to the firm as investing in a bankrupt organisation would be risky. So for a section of readers say the creditors this kind of study helps to elaborate the matter for a better understanding (Fracassi, 2016). It also serves as a wide opportunity for further research as the Estonian experiment could be broadened to the firms of other countries also.

Lukason & Camacho-Miñano (2019), has used hypothesis testing to establish the relationship between bankruptcy risk and the phenomenon of reporting delays. This kind of scientific methodology is useful to adjudge the tendency and the relevant financial ratios to support the facts. But the study has its weakness as it undertook a single-minded approach by studying the Estonian firms only. It would have been more impactful if the study sampled forms from 2-3 countries to develop uniformity across its foray. The article though cited the reason for bankruptcy through financial ratios but is silent on the plausible causes of the reporting delays apart from the managerial intention. But this sort of study inspires the researchers to conduct these kinds of studies based on a different context, say any other European nation to verify its outcome (Malmendier, 2018). For this sort of study to be successful, a cross-nation analysis might have been more effective to come to a suitable conclusion. Despite having certain gaps, the article points out the facts that could be adjudged in evaluating the bankruptcy risk and reporting delay is one of the aspects. Therefore, this article offers a fresh perspective in understanding the bankruptcy risks for the businesses making it useful for the general readers as well.

4.0 Conclusion
Lukason & Camacho-Miñano (2019), has been able to establish their claim that the bankruptcy risk and reporting delays are closely related to each other. The authors claimed it based on an illustrative hypothesis rather than an estimation proving the sanctity of the study. The relevance of financial ratios determining liquidity, leverage, and profitability of the firms to evaluate the risk level is fairly organised making it understandable to a larger audience. But the study lacks uniformity as the study have been specified for the Estonian firms rather than 2-3 countries at a stretch making it a single-minded approach and losing its global appeal.

Brealey, R., Myers, S. & Allen, F., 2020. Principles of Corporate Finance. 13th ed. Reading: McGraw Hill.

Fracassi, C., 2016. Corporate finance policies and social networks. Management Science, 63(8), pp. 2420-2438.

Lukason, O. & Camacho-Miñano, M., 2019. Bankruptcy risk, its financial determinants and reporting delays: do managers have anything to hide?. Risks, 7(3), p. 77.

Malmendier, U., 2018. Behavioral corporate finance. In: Handbook of Behavioral Economics: Applications and Foundations 1. London: North-Holland, pp. 277-379.


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