Predicting business survivals and cessation dynamics among medium-sized enterprises

Abstract

The argument of the thesis focuses on the detection of business survivals and cessation trends in the Veneto region during the years of the recent financial crisis. After an introduction on the variations that have been shaping the regional economic environment over the last twenty years, the paper presents a discussion on the principal aspects and factors connected with corporate survival, business crises and insolvencies. The paper illustrates the empirical investigation conducted on a sample of 324 manufacturing and construction companies operating in Veneto during the years 2006-2015, comparing key indicators and focusing mainly on financial and liquidity dynamics. In order to recognize whether it could be possible to predict survival tendencies or bankruptcy one year prior to its manifestation, a revisited version of the Altman Z-Score model has been applied. On the basis of the limitations found in applying the said model (predictive accuracy versus total aggregate error), the final chapter of the thesis examines the ways in which the original model could be improved, whether possible. Two alternatives have been suggested: either updating the coefficients used in the original discriminant formula or replacing the five original indicators with other business ratios. The paper ends with a framework comparison and with a discussion on the prediction accuracy revealed by all the proposed diagnosis models in anticipating business survivals and corporate defaults.