Ownership structure and financial default risk in Italian private firms

Journal title FINANCIAL REPORTING
Author/s Velia Gabriella Cenciarelli
Publishing Year 2025 Issue 2025/2
Language English Pages 28 P. 165-192 File size 247 KB
DOI 10.3280/fr202520028
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Purpose: This study investigates the relation between ownership structure and fi-nancial default in private firms, focusing on two key dimensions: ownership concen-tration - the share held by the top three shareholders – and institutional ownership – the share held by institutional investors. Design/Methodology/Approach: The empirical research augments traditional de-fault prediction model with ownership structure indicators, using an unbalanced panel of 28,562 Italian private firm-year observations from 2012-2019. Findings: The results show that ownership concentration has a significant positive association with default likelihood, while institutional ownership reduces the prob-ability of default. Further, I find that default prediction models including ownership structure variables have a higher predictive ability than the traditional default pre-diction model. Originality/Value: This study contributes to the literature on ownership structure and financial default by providing empirical evidence on private firms, a setting where market-based predictors are unavailable. It shows that ownership concentra-tion and institutional ownership systematically influence financial stability and im-prove default prediction accuracy. Practical implications: This study suggests that ownership structure indicators can be integrated into credit risk assessment and early warning systems, as promoted by recent European Union insolvency frameworks, to strengthen monitoring of finan-cially distressed private firms.

Keywords: ownership structure, ownership concentration, institutional ownership, bankruptcy risk, private firms

Jel codes: G2, G3, M2, M4

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Velia Gabriella Cenciarelli, Ownership structure and financial default risk in Italian private firms in "FINANCIAL REPORTING" 2/2025, pp 165-192, DOI: 10.3280/fr202520028