Identifying the financial risk factors of excessive indebtedness of rural communes in Poland

Abstract

The purpose of this paper is to identify the financial risk factors of excessive indebtedness of Polish rural communes. The objective of this research task is to verify the following research hypothesis: the main determinant of the risk of excessive indebtedness is the rural communes' own income potential. To meet the objective of this research, an empirical study was carried out in three steps. The first step of the research procedure was the analysis of the operation of Polish rural communes in the context of financial management. In the second step was the analysis of indebtedness of rural communes compared to other types of Polish administrative units in 2007-2017. The evolution of the level and share of total debt in total incomes of entities studied was analyzed, and the share of overindebted rural communes was identified. In the third step, a discriminatory analysis was performed to build a model able to forecast the financial risk factors of excessive indebtedness for Polish rural communes. The problem of increasing indebtedness can be observed in a growing number of communes and on an increasing scale in Poland. The discriminant analysis showed that the share of the operating surplus and own income in total income, as well as the amount of the EU funds per capita (in zlotys), are particularly significant. The study reveals that the smaller the share of the operating surplus in total income is as well as the greater the share of own income in total income and the amount of the EU funds in zlotys per capita are, the lower the value of the estimated discriminatory function is and the higher the risk of excessive indebtedness of a rural commune is.