Financial distress cost of Italian small and medium enterprises: A predictive and interpretative model

This 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.

Coherently 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.

The 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).

The 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.

The timely monitoring of investigated variables allows you to mitigate the costs of exit from the market.

Following the global financial crisis, this paper sheds new light on the financial distress cost of Italian SMEs.