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What is the Relationship Between Sales Growth and Insolvency Risk?

Author

Listed:
  • Šarlija Nataša

    (University of Osijek, Faculty of Economics in Osijek, Trg Lj. Gaja 7, 31000 Osijek, Croatia)

  • Šimić Sanja

    (The Croatian Chamber of Economy, Rooseveltov trg 2, 10000 Zagreb, Croatia)

  • Đanković Biljana

    (Osijek Baranja County, Trg Ante Starčevića 2, 31000 Osijek, Croatia)

Abstract

Sales growth is essential for an enterprise’s survival and financial growth. If an enterprise manages to achieve sales growth, its expansion can be accomplished. However, does sales growth always have only positive effects? If the enterprise is not collecting enough cash, it can miss a payment on its debt, triggering a series of events that can lead to its insolvency. The goal of the paper is to explore the relationship between an enterprise's sales growth and its insolvency. The relationship is tested empirically on the data set of 4271 SMEs in Croatia. The results confirmed that there is a relationship between sales growth and insolvency. Better indicators exist with solvent and growing SMEs than with insolvent and non-growing. Results have also shown that high growth can be at the same time a high risk. The paper contributes to a deeper understanding of the relationship between sales growth and insolvency and empirically demonstrates that sales growth over 200% per year induces the highest probability of insolvency compared to other lower levels of growth.

Suggested Citation

  • Šarlija Nataša & Šimić Sanja & Đanković Biljana, 2023. "What is the Relationship Between Sales Growth and Insolvency Risk?," Naše gospodarstvo/Our economy, Sciendo, vol. 69(3), pages 1-11, September.
    • Handle: RePEc:vrs:ngooec:v:69:y:2023:i:3:p:1-11:n:4
    DOI: 10.2478/ngoe-2023-0013
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    References listed on IDEAS

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    More about this item

    Keywords

    SMEs growth; Insolvency risk; Sales growth; Financial indicators; Insolvency prevention; Bankruptcy;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics

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