Theoretical and practical aspects of corporate borrowing
ENThis article deals with some elements of corporate borrowing and the interest of banks' lending to private companies. The author shortly summarizes, that the availability of external finance in transition is quite complicated to private business, and to start-ups. Borrowing costs, competition among banks, banking consolidation, prevalent corporate internal and external control, bank equity holdings in borrowing firms, the signaling role, collateral requirements, relationship lending, etc. can influence the availability of external finance to private companies. Some research hypothesis related to financial theories and intuitions of corporate borrowing are also shortly presented in this article (in Table 2). However, the core of this article is concerned with the opinion of the author, that the scale of lending and the disciplinary of borrowing are dependent on the effective bankruptcy proceedings and the creditors' rights protection after filling the bankruptcy petition to indebted firms. Some basic conclusions are presented in this summary: 1. The most effective strategy of stimulating the activity of private enterprises is provision with finance, improvement of business environment and the strengthening support networks. 2. The scale of bank lending may depend on the effective bankruptcy proceedings and creditors' rights protection. 3. An increased amount of bankruptcies and liquidation of financially troubled firms can inevitably influence the financial results of banks (this is a potential problem in Lithuania because of the newly enacted bankruptcy and enterprise restructuring legislation in 2001). 4. An effective protection of creditors' rights at the moment of financial crises of indebted enterprises should facilitate the solution in order to avoid the losses in the banking sector.5. The lending process is rationed by commercial banks because these financial institutions often lack the expertise experience of evaluating business perspective of the borrower in advance (underinvestment). In some transition countries, it is still difficult to obtain even short-term financing. More over, many private companies do not have audited financial statements that can be shared with any provider of external finance. This also can cause troubles of availability to external finance. 6. The trigger mechanism should be optimal to put an entity into legal insolvency. The rights of creditors, during the bankruptcy procedures, and the secured rights of creditors influence and stimulate the willingness of banks to lend to companies. The rights of creditors also strengthen their ability to intervene in the restructuring process and the decision-making. Bankruptcy and restructuring of indebted enterprises' procedures delays can harm the debtor and the creditor, and also overburden the overall system. 7. Insolvency procedure has a negative connotation. The society, because of the ignorance and incompetence, the bankruptcy petition links with the liquidation of companies in financial trouble and the increase of unemployment. Therefore, the society has to be enlighten that insolvency procedures can effectively facilitate negotiations between borrowers and creditors. It can also help to avoid premature closures of companies facing financial difficulties.
