Creative accounting in Eastern Europe : the case of the Polish port companies

Abstract

During 1991, a large number of small companies was created to run the operational activity of the Polish seaports, which was until then monopolised by state-owned enterprises. The major part of the shares is held by the employees. Leasing-techniques are used to solve the problem of financing the infrastructure. Although the profit-margins are relatively modest, the return on total assets is rather important because the infrastructure does not appear on the assets-side of the privatised companies. As a consequence of what we call leasing-leverage, the return on equity reaches almost astronomic heights. In the conclusion we indicate the potential dangers of this situation; the financial construction does not solve the ownership-problem of the assets, can lead to only very short-term based decisions and does not guarantee continuity when the assets have to be replaced.