Financial distress cost of Italian small and medium enterprises

Financial distress cost of Italian small and medium enterprises PurposeThis paper aims to propose a theoretical model designed to predict the likelihood of financial distress of an enterprise and to quantify the damages whenever the financial crisis became full-blown.Design/methodology/approachCoherently with the objectives of the paper, the analysis considers the last seven exercises (period: 1999/2006) of a sample of 25.000 small- and medium-sized enterprises (SMEs) (volume of sales: < 20 mlns; number of employees: < 250) organized in the form of Ltd. The empirical investigation has been affected through the use of BvD database: Aida and Mint Italy.FindingsThe analysis shows that the ex post costs of financial distress decrease in relation to the company’s increased ability to use intangible assets and in relation to the local roots of the banks (local banks rather than international banking groups).Research limitations/implicationsThe instruments used for this study need to be subjected to more statistical tests to establish a more robust validity and reliability. Replication of this study using larger samples and a broader geographic base (extended at European level) is suggested.Practical implicationsThe timely monitoring of investigated variables allows you to mitigate the costs of exit from the market.Originality/valueFollowing the global financial crisis, this paper sheds new light on the financial distress cost of Italian SMEs. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png The Journal of Risk Finance Emerald Publishing

Financial distress cost of Italian small and medium enterprises

The Journal of Risk Finance, Volume 18 (5): 17 – Nov 20, 2017

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1526-5943
DOI
10.1108/JRF-04-2017-0071
Publisher site
See Article on Publisher Site

Abstract

PurposeThis paper aims to propose a theoretical model designed to predict the likelihood of financial distress of an enterprise and to quantify the damages whenever the financial crisis became full-blown.Design/methodology/approachCoherently with the objectives of the paper, the analysis considers the last seven exercises (period: 1999/2006) of a sample of 25.000 small- and medium-sized enterprises (SMEs) (volume of sales: < 20 mlns; number of employees: < 250) organized in the form of Ltd. The empirical investigation has been affected through the use of BvD database: Aida and Mint Italy.FindingsThe analysis shows that the ex post costs of financial distress decrease in relation to the company’s increased ability to use intangible assets and in relation to the local roots of the banks (local banks rather than international banking groups).Research limitations/implicationsThe instruments used for this study need to be subjected to more statistical tests to establish a more robust validity and reliability. Replication of this study using larger samples and a broader geographic base (extended at European level) is suggested.Practical implicationsThe timely monitoring of investigated variables allows you to mitigate the costs of exit from the market.Originality/valueFollowing the global financial crisis, this paper sheds new light on the financial distress cost of Italian SMEs.

Journal

The Journal of Risk FinanceEmerald Publishing

Published: Nov 20, 2017

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