An Assessment of the Impact of the Banking Sector Financial Stability on the Likelihood of Real Sector Economy Companies’ Bankruptcy: The European Union Case

Elena A. Fedorova 1, Elena I. Meshkova 2, Alexander R. Nevredinov 1

1 Bauman Moscow State Technical University, Moscow, Russia
2 Financial University under the Government of the Russian Federation, Moscow, Russia

Abstract

Both individual economic agents and society at large are interested in the stable functioning of companies in the real sector of the economy. At the same time, the banking sector plays a critical role in the availability of financial resources for companies, borrowing costs and other credit terms. Despite its importance, the impact of banking sector financial stability on corporate sustainability remains a relatively underexplored issue. The study aims to assess the impact of the financial stability of the banking sector on the likelihood of corporate bankruptcy in the real sector of the economy, to identify the direction of such influence, and, on this basis, develop practical recommendations for regulators. The analysis focuses on two key parameters: capital adequacy and liquidity. The results of the study are based on statistical modeling, using financial indicators and bankruptcy data for 34,932 non-financial public European companies, as well as financial stability indicators (FSI) of the European banking sector (15 indicators) over the period 2014-2019. The study employs partial least squares structural modeling (PLS-SEM) and importance and performance matrix analysis (IMPA). The results show that FSIs have a significant impact on preventing corporate bankruptcy in Europe. Among the FSIs, bank efficiency has the strongest impact (reverse effect), followed by bank liquidity and capital adequacy (direct effect). Efficiency indicators have an inverse effect on the bankruptcy rate of companies in the real sector of the economy: the higher the efficiency indicators, the lower the probability of bankruptcy. Bank liquidity and capital adequacy indicators, on the contrary, directly affect the probability of corporate bankruptcy. Of the efficiency indicators, the interest margin is the most influential. We also found that improving the ratio of non-profitable loans minus reserves to capital has the potential to significantly lower corporate bankruptcy risk. The study confirms the hypothesis that the banking sector has a significant impact on the bankruptcy rate of companies in the non-financial sector of the economy.

Keywords

corporate bankruptcy; banking stability; financial stability assessment; partial least squares structural equation modeling (PLS-SEM); importance-performance matrix analysis (IMPA).

JEL classification

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About Authors

Elena Anatolyevna Fedorova

Doctor of Economics, Professor, Department of Business Informatics, Bauman Moscow State Technical University, Moscow, Russia (105005, Moscow, 2nd Baumanskaya street, 5, building 1); ORCID https://orcid.org/0000-0002-3381-6116 e-mail: ecolena@mail.ru

Elena Ivanovna Meshkova

Candidate of Economic Sciences, Associate Professor, Department of Banking and Monetary Regulation, Faculty of Finance, Financial University under the Government of the Russian Federation, Moscow, Russia (125167, Moscow, Leningradsky prospekt, 49/2); ORCID https://orcid.org/0000-0003-3054-1943 e-mail: eimeshko-va@fa.ru

Alexander Rustamovich Nevredinov

Post-Graduate student, Bauman Moscow State Technical University, Moscow, Russia (105005, Moscow, 2nd Baumanskaya street, 5, building 1); ORCID https://orcid.org/0000-0003-3826-1305 e-mail: a.r.nevredinov@gmail.com

For citation

Fedorova, E.A., Meshkova, E.I., Nevredinov, A.R. (2025). An Assessment of the Impact of the Banking Sector Financial Stability on the Likelihood of Real Sector Economy Companies’ Bankruptcy: The European Union Case. Journal of Applied Economic Research, Vol. 24, No. 3, 843-872. https://doi.org/10.15826/vestnik.2025.24.3.028

Article info

Received March 20, 2025; Revised June 18, 2025; Accepted July 7, 2025.

DOI: https://doi.org/10.15826/vestnik.2025.24.3.028

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