The level of dividends paid for the financial year 2016 was 43 billion lei (9.5 billion euro – ed.n), representing an 85 percent distribution percentage of the profits earned in the last year, according to an analysis conducted by Iancu Guda, President of the Romanian Financial and Banking Analysts’ Association (AAFBR) and lecturer at the Romanian Banking Institute (IBR).
“Recent history shows that dividend tax reduction from 16 pct to 5 pct (as of January 1, 2016) is reflected in a massive acceleration of the profits’ distribution towards dividends payment. I estimate that the level of paid dividends corresponding to the financial year 2016 was 43 billion lei, representing an 85 percent distribution percentage of the profits earned in the last year, and about 10 pct of the own equity of all companies,” Iancu Guda says.
He argues that it is necessary to verify in detail the reasons why the companies record losses for three consecutive financial exercises, do not carry out any activity, the terms of financing from the affiliated entities, as well as the obligation to cover the negative own capital by increasing the share capital and the completion of uncovered losses.
“The reason is simple: because all of these practices have become a generalised phenomenon and should be better regulated. Romania has become the regional champion of companies without activity, given that 1 out of 4 companies are “operational” but have zero income, the highest percentage in Central and Eastern Europe. This reflects the Romanian start-ups mentality, which is restrained to tentative general business ideas, modestly documented, using the “other people’s money” (commercial debts as the main source of financing). We simulate entrepreneurship, and when we realize that it’s hard, that it requires too many sacrifices, we do not understand, or there have been too many factors not having been taken into account, we leave the company as it is … without activity!” Guda explains.
According to him, 45 percent of the companies operating in Romania register negative equity.
According to the study, the procedures applied to these companies should be carefully weighed as it involves negative own equity capital of approximately 153 billion lei and nearly 711,000 employees who work in these companies and pay social contributions, respectively 18 pct of the total number of employees in the business milieu.