Abstract:

Given the Romania’s economic reality related to the insolvency law that has given the firms the possibility to declare their insolvency and to avoid compliance debts to partners, we believe that a careful analysis on how the insolvency of a company's financial state influences its business partners is welcome. The study is based on the analysis of a complex network, composed of 22 companies, using NodeXL and illustrates the connections that occur between companies and the contagion generated by a randomly chosen firm. In this paper, we study how the structure of inter firms connections is related to the contagion risk of defaults, given by the manifestation of the insolvency risk within a firm. By measuring the financial contagion risk and incorporating it to the bankruptcy models, a more accurate diagnosis and prediction can be made.