MODELLING THE ESTIMATION OF THE IMPACT OF CRISES AT SUBSIDIARIES ON THE FINANCIAL STATE OF A CORPORATION
Gvozdytskyi V.S.
PhD
Simon Kuznets KNUE (Ukraine)
gvozdikramm@gmail.com
The problem of preventing financial crises in corporate systems, whose activities are becoming increasingly complex in the context of globalization, now is becoming one of the most important for both government and company level. The current trends actualize the problem of finding the effective tools for preventing financial crises in corporate systems, in particular, through the implementation of the mechanisms for early warning and crisis prevention, which are based on the principles of proactive management [1]. The implementation of such mechanisms into the financial activities of corporations allows timely diagnosis of negative events and processes, developing appropriate effective management decisions, determining the optimal amount of reserves and preventing asynchrony in financial flows of corporate structures.
As shown in previous analyses [2], in the most researches regarding crises forecasting in corporate systems the insufficient attention is paid to the problem of the complex improvement of the financial management system of corporations. In most cases, the central issue is the development and implementation of tools for local diagnosis of crisis phenomena in individual enterprises. The issues of evaluating the impact of local financial crises on the financial state of the corporate structure as a whole, of predicting the financial crises of the corporate structure with the aim of preventing or localizing the consequences are poorly considered. Due to this, the development of a model basis of the mechanisms of early warning and crisis prevention in corporate systems is an urgent way to improve the efficiency of financial activities of corporations.
As substantiated in previous researches [1-3], the modelling of estimation of the impact of the financial crisis at the subsidiaries on the threat of bankruptcy of the corporation has a big importance. The research module [2] related to this modelling analyzes the nature of the relationships between subsidiaries and parent enterprises, the financial flows between all corporate structural units; linguistic terms and rules of recognition are formed; the calculation of the impact evaluation of crises at the subsidiaries on the threat of bankruptcy of the corporation is carried out. To implement the tasks of this module the theory of fuzzy logic is used.
For constructing the model, a complex indicator of the degree of influence of subsidiary’s financial condition on the overall corporation’s condition was denoted by V. The higher value of the V – the higher the degree of influence. This complex indicator takes values in the range from 0 to 1. The system of indicators for evaluation the impact of crisis threat at subsidiaries on the financial condition of the corporation as a whole was selected on the basis of an analysis of corporate performance and statistics of bankruptcy procedures. This system of indicators includes: X1 – the share of subsidiary’s revenue in the corporation; X2 – the nature of production links; X3 – the presence of subsidiary’s granddaughter companies; Х4 – the share of subsidiary’s authorized capital in the corporation; Х5 – the share of external accounts payable.
The membership functions were set as of a trapezoidal type, they correspond to all variants of the corporation’s dependence on subsidiary: from almost its absence (μv1) to the maximum (μv5).
For the chosen indicators of the financial condition of the enterprise Xi, the linguistic variables Li “Level of indicator Xi” were set (5 subsets of levels from “very low” to “very high”) [3]. The calculated values of the complex indicator of the degree of influence of threats to the formation of crisis events at the subsidiaries on the financial condition of the corporation as a whole are presented in Table. 1.
Таблиця 1
Recognition of the degree of influence of enterprises on the financial condition of the corporation
| Enterprise | Value of V | Degree of influence | The membership function |
|---|---|---|---|
| Enterprise №1 | 0,57 | High | 1 |
| Enterprise №2 | 0,43 | High | 1 |
| Enterprise №3 | 0,23 | Medium | 1 |
| Enterprise №4 | 0,37 | Medium | 0,13 |
| High | 0,87 | ||
| Enterprise №5 | 0,24 | Medium | 1 |
As can be seen from Table 1, all five investigated subsidiaries have a significant impact on the financial condition of the corporate structure as a whole. Enterprise No. 1 is the core of the entire corporation. This enterprise accounts for 70% of the total corporate revenues. Enterprise No. 2 ranks second in this indicator, but it shows a significant increase in production and sales of products over the past few years. Enterprises No. 3-5 occupy a small share in the corporation’s revenues. The main goal of incorporating these enterprises into the corporate structure is to provide the leading enterprises with the necessary raw materials: different grains and sugar. Deepening the crisis at one of these enterprises will necessarily affect the activities of the two main profitable factories of the corporation, and this, in turn, will provoke the deterioration of the financial condition of the whole corporation.
Thus, the constructed model allows to adequately evaluate the impact of the crisis threat at subsidiaries on the corporation condition. Based on the results of modelling, all enterprises have a significant impact on the financial condition of the corporation. Taking into account the fact that the threat of bankruptcy of the enterprise No. 4 is very high based on the results of the simulation of the crises threat estimation at subsidiaries, then the efficiency of this particular subsidiary should be given the greatest attention by the corporation management. In order to adequately assess the possible threats to the corporation, it is necessary to predict the future condition of each subsidiary and how the forecasted situation at subsidiaries will affect the financial condition of the corporation as a whole.
REFERENCES
Klebanova T.S. Models of estimation in the mechanism of early informing and prevention of financial crises in corporate systems / T.S. Klebanova, V.S. Gvozdytskyi, S.V. Labunska, I.V. Yermachenko // Financial and credit activity: problems of theory and practice. – 2018, Vol2 (№25). – P. 191–197.
Ponomarenko V. S. Modelling the estimation of the threat of financial crises in corporate systems / V. S. Ponomarenko, T. S. Klebanova, V. S. Gvozdytskyi // Информационная экономика: этапы развития, методы управления, модели : Монография // Под ред. д. э. н., проф. В. С. Пономаренко, д. э. н., проф. Т. С. Клебановой. – Харьков, ВШЭМ – ХНЭУ им. С. Кузнеца, 2018. – 676 с.
Клебанова Т.С. Оценка склонности предприятий к банкротству на основе методов нечеткой логики и нечетких нейронных сетей / Т.С. Клебанова, В.С. Гвоздицкий // Бізнес Інформ. – 2015. – №10. – с. 165-170.