Bankruptcy risk

from Wikipedia, the free encyclopedia

The insolvency risk describes the risk of a possible insolvency (“illiquidity” or insufficient liquidity ) of a private person or a company .

causes

In imperfect markets, business activities can be permanently disrupted or even permanently terminated by crises or unplanned events. This creates a certain risk, the income risk , which the owner (valuation subject) bears. The company value is therefore dependent on the uncertainties of future financial surpluses (payments). The amount of equity and liquidity available (see risk coverage potential ) of a company also influences the risk of insolvency. This risk can be quantified by the probability of insolvency (see rating ) and is dependent on the aggregated scope of risk.

Effects

The existence of the risk of bankruptcy affects company value in two different ways. On the one hand, there are direct bankruptcy costs that arise when bankruptcy proceedings are opened. On the other hand, through indirect insolvency costs, which result from the increased risk of possible insolvency and thus it is more difficult to keep customers or employees of a company or to acquire new ones. Thus, the probability of insolvency has a direct influence on the expected value of a company's earnings, but also has an influence on the development over time of the expected value of earnings or cash flow in the continuation phase and acts there like a negative growth rate of the chas flow. Because the further you look into the future from today's point of view, the more likely a possible bankruptcy and the related insolvency of an existing company is.

Consideration

The insolvency risk and the associated risk information can be taken into account by simulation methods ( Monte Carlo simulation ) in the course of determining the rating and the company valuation. A rough consideration is also possible with an addition of the forecast insolvency probability to the discount rate. The probability of insolvency is also a measure of the continuity of a company and is therefore closely related to the legal requirement that the board of directors of a company must identify “dangerous developments” within the meaning of Section 91 (2) AktG at an early stage. It is therefore one of the core tasks of risk management to deal with the risk of insolvency.

Allocation of the risk of bankruptcy in the legislation

The fair allocation of the insolvency risk is a leitmotif of German civil law legislation , namely the law on enrichment . In the event of contractual claims, everyone should bear the risk of their contractual partner becoming insolvent. The background to this is that you can choose your contractual partner freely (see private autonomy ). Choosing an unreliable partner should not be at the expense of uninvolved third parties. For this reason, the BGB has not, for example, taken on the common law version action , which enabled the creditor to demand unjust enrichment from third parties if his debtor is insolvent.

Example: V sells a thing to K, who then sells the thing on to third party D. If it now turns out that the sales contract between V and K was void, V cannot simply demand the thing from D. Instead, he must stick to his contractual partner K, who may owe compensation for the value (processing “along the service chain ”). If K cannot compensate for the value due to lack of property, the loss is borne by V, who K has chosen himself as a contractual partner.

Allocation of the risk of insolvency as an argument of interpretation

Even when interpreting the law , the principle that everyone should bear the risk of their contractual partner becoming insolvent is a frequently used argumentation model.

When dealing with the so-called double defect, the constellation is that both the original sales contract and the resale contract are ineffective. In the above example, the sales contract between K and D should therefore also be void. Then one could assume, according to Section 818 (1) BGB, that K would have to assign the right to surrender against D to V. Then V would no longer bear the risk of the insolvency of K, his contractual partner, but of third party D. Therefore, others only want V to grant V a claim for compensation against K, Section 818 (2) BGB.

The problem is similar when an exercised power of attorney is challenged. Then the representative's power of representation would retroactively lapse and the contractual partner would have to stick to the representative, who in turn could take recourse against the person represented according to § 122 BGB. Then the contractual partner would no longer bear the insolvency risk of the person represented with whom he wanted to conclude a contract, but of the agent. Therefore, some people either do not want to allow the contestation at all or regard it as contesting not the granting of power of attorney, but rather the contract itself, because the contractual partner would then be entitled to the claim from § 122 BGB directly against the person represented.

See also

literature

  • W. Ballwieser , T. Friedrich: Peers, Market Risk Premium and Insolvency Risk: Some Notes on Three Problems of Company Valuation. In: Corporate Finance. biz 12, 2015, pp. 449-457.
  • T. Friedrich: Company valuation with bankruptcy risk. Lang, Frankfurt 2015, ISBN 978-3-631-66603-6 .
  • W. Gleißner: Controlling and risk analysis when preparing top management decisions . In: Controller Magazin. July / August 2015, pp. 4–12.
  • W. Gleißner: The influence of the probability of insolvency (rating) on ​​the company value and the cost of equity - At the same time, opinion on the specialist text Lobe. In: Corporate Finance. biz 3, 2010, p. 179 (182); In: Corporate Finance. biz 4, 2011, pp. 243-251.
  • W. Gleißner: Determination of an objectified company value of SMEs - suggestions with special consideration of rating and insolvency probability. In: WPg. Issue 17, 2015, pp. 908–919.
  • W. Gleißner: Basics of risk management . Munich 2008, ISBN 978-3-8006-3458-3 .
  • W. Gleißner: Risk assessment for investments: Determination of risk-appropriate financing structures and return requirements through simulations . In: The Controlling Consultant - Investment and Project Controlling. Volume 30, 2013, pp. 213-236.
  • W. Gleißner: The Last Line of Defense: The Supervisory Board . In: The Supervisory Board. 06/2016, pp. 85-87.
  • W. Gleißner: Company value, rating and risk. In: WPg. Issue 14, 2010, pp. 735-743.
  • U. Kehrel: The importance of insolvency risk in company valuation. In: ZfCM. 5th volume, issue 6, 2011, pp. 372-376.
  • M. Knabe: The consideration of insolvency risks in the company valuation. Eul, Lohmar 2012, ISBN 978-3-8441-0126-3 .

Individual evidence

  1. ↑ U. Kehrel, J. Leker: corporate crises. In: magazine leadership and organization. 78th volume, issue 4, 2009, p. 200 ff.
  2. ^ W. Gleißner: Determination of an objectified company value of SMEs - suggestions with special consideration of rating and insolvency probability. In: WPg. Issue 17, 2015, p. 910.
  3. ^ W. Gleißner: Determination of an objectified company value of SMEs - suggestions with special consideration of rating and insolvency probability. In: WPg. Issue 17, 2015, p. 917.
  4. ↑ W. Gleißner: Risk assessment for investments: Determination of risk-appropriate financing structures and return requirements through simulations. In: The Controlling Consultant - Investment and Project Controlling. Volume 30, 2013, p. 232.
  5. ↑ W. Gleißner: The influence of the probability of insolvency (rating) on ​​the company value and the cost of equity - At the same time, opinion on the specialist text Lobe. In: Corporate Finance. biz 3, 2010, p. 179 (182); In: Corporate Finance. biz 4, 2011, p. 244.
  6. ↑ a b W. Gleißner: enterprise value, Risk and Rating. In: WPg. Issue 14, 2010, pp. 739-743.
  7. ↑ W. Gleißner: The influence of the probability of insolvency (rating) on ​​the company value and the cost of equity - At the same time, opinion on the specialist text Lobe. In: Corporate Finance. biz 3, 2010, p. 179 (182); In: Corporate Finance. biz 4, 2011, p. 251.
  8. ↑ Stock Corporation Act, Section 91 Organization. Accounting. Federal Ministry of Justice and Consumer Protection, accessed on January 7, 2017 .
  9. ^ W. Gleißner: Controlling and risk analysis in the preparation of top management decisions . (PDF) In: Controller Magazin. July / August 2015, p. 9.
  10. ^ W. Gleißner: The Last Line of Defense: The Supervisory Board . (PDF) In: The Supervisory Board. 06/2016, p. 85.