An analysis of the determinants of financial distress in Italy: a competing risks approach

This paper investigates the influence and the effect of micro-economic indicators and firm-specific factors on different states of financial distress. In particular, a competing risks model is estimated taking into account the differences among variables leading firms to exit the market through bankruptcy, liquidation and inactivity. The determinants of financial distress for any exit route are identified on the basis of the influence on the hazard ratios of the significant variables selected for each state. Furthermore, the predictive performance of the competing-risks model over the single-risk framework is evaluated, with respect to different time windows, by means of some accuracy measures. The results reached on a sample of Italian firms provide support for the hypothesis that the factors influencing firms' way out strongly depend on the exit routes and highlighting the need to distinguish among them by means of a multiple-state approach.