The Assessment of Financial Risks of Municipally Owned Public Utility Companies in Hungary Between 2009 and 2018

Abstract

The aim of this study is to assess the financial risks, as interpreted by us, of Hungarian corporations fully owned by municipalities across a national dimension after the global economic crisis broken out in 2008. In this study, financial risk was measured by profitabil[1]ity, liquidity and the equity ratio. We were seeking an answer to the question as to how more stringent state controls had influenced the companies’ ability to provide public services and their financial situation behind in a more robust public financial regulatory and control environment created in Hungary after 2010, that is, how the going concern principle of accounting had been implemented. Indirectly, we were also seeking an answer to the question as to how operational risks had been affected by the ‘breaking’ effect on net income exerted by the administrative price regulation (reduction of utility costs on the consumers’ side) imposed on the services of public utility companies in 2013 (as part of the public finance re[1]form introduced in 2010), that is, whether a more robust regulatory environment of public finances compelled the promotion of corpo[1]rate efficiency. With the complex (and inter-related) methodology of the assessments carried out, we could establish that financial risks improved, but we propose even stricter controls due the economic shock caused by the COVID-19 pandemic. Our research results present a comprehensive situational picture of municipally owned companies providing public services in an emerging market econo[1]my, which can be compared with the data of other countries as well.