This paper describes the effects of the nascent regulation of the Italian Insolvency Law in regard to Troubled Debt Restructuring (TDR), which has not yet been studied in Italy. We have developed a model to assess the probability for a firm to file for the TDR, describing the TDR’s effects on the financial distress. To this end, we collected a panel dataset of 49 Italian listed companies from the period 2003 to 2011. Firstly, according to previous literature, we apply the multivariate discriminant analysis (MDA) through accounting ratios in order to distinguish the groups of “distressed” and “non-distressed” firms. Subsequently, we introduce a novel technique to forecast the probability of filing for the TDR. The results confirm our hypotheses: the probability of the “distressed” group increases until the year of TDR application and then decreases; on the contrary, it follows a constant trend for the “non-distressed” firms. Supplementary results reveal that the financial condition of the distressed group post-filing TDR is frozen. These findings prove that the TDR seems to support the distressed firms in regard to the maintenance of their financial stability during the crisis.

Assessing the Probability to File for Troubled Debt Restructuring through Accounting Ratios Analysis: the Italian case

DE LUCA, Francesco
;
Enrica Meschieri
;
Martina Malorni
2013-01-01

Abstract

This paper describes the effects of the nascent regulation of the Italian Insolvency Law in regard to Troubled Debt Restructuring (TDR), which has not yet been studied in Italy. We have developed a model to assess the probability for a firm to file for the TDR, describing the TDR’s effects on the financial distress. To this end, we collected a panel dataset of 49 Italian listed companies from the period 2003 to 2011. Firstly, according to previous literature, we apply the multivariate discriminant analysis (MDA) through accounting ratios in order to distinguish the groups of “distressed” and “non-distressed” firms. Subsequently, we introduce a novel technique to forecast the probability of filing for the TDR. The results confirm our hypotheses: the probability of the “distressed” group increases until the year of TDR application and then decreases; on the contrary, it follows a constant trend for the “non-distressed” firms. Supplementary results reveal that the financial condition of the distressed group post-filing TDR is frozen. These findings prove that the TDR seems to support the distressed firms in regard to the maintenance of their financial stability during the crisis.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11564/496088
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