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Introduction – The Romanian industry was one of the most important traditional branches and in the context of the integration of the country into the European Union, the Romanian industry has made progress in the development of several types of industrial branches, attracting in this sector investors with foreign capital that have determined economic growth by branch having a major impact on the achievement of gross domestic product. The progress and sustainable development of a country is interdependent on both macroeconomic and microeconomic development, and the development of a branch of the economy leads to the creation of a stable environment for attracting new investors and implicitly to the upward evolution of the economy by branch.

Purpose – This article identifies models of bankruptcy risk analysis that have as variables relevant performance indicators for examining the bankruptcy risk of Romanian industrial companies so that it is verified how predictable and significant it is to avoid their potential bankruptcy.

Methodology – By using performance indicators such as liquidity, profitability and insolvency, the analysis aims to be a benchmark for the Romanian industrial companies’ research in terms of bankruptcy risk, but also the accuracy of the models chosen to diagnose a potential bankruptcy.

Findings – There was highlighted a strong relationship between the economic and financial indicators and the Z score functions.

This study attempts to analyze the role of governance mechanisms in municipal bankruptcy, which appears to be a neglected area of research. The analysis considers both the organizational level (micro) and the regulatory system (macro).

We use a relevant case of municipal bankruptcy in Italy to discuss the influence of governance characteristics, such as the political and management structure, interaction, and behaviors. The issues related to the accounting system and external audits are also considered. The data for this study are obtained from secondary sources such as audited budgetary reports, public documents, and reports from the Supreme Audit Institution.

The study indicates that the spoils system can favor the politicians’ exercise of power over public managers and undermine the capacity to prevent and manage financial distress. Poor accounting and weak control systems may facilitate this process. The high turnover of top management throughout a mayor’s term in office may reflect political pressure to force accounting rules and achieve flexibility to obtain the expected results or to correct poor financial performance.

To avert municipal bankruptcies, regulations should consider enforcing ex ante control by external oversight bodies, forbidding risky operations and limiting the spoils system for financial management positions and internal auditors.

Municipal defaults around the world have indicated that regulations and audits are ineffective to prevent local governments from failing. A full understanding of complex mutual interactions between the mechanisms of governance and the behaviors of politicians and managers can provide valuable insights to prevent local governments from failing.

This chapter develops a Probit model that identifies the financial variables explaining the bankruptcy of banking institutions in Ecuador as a function of efficiency, assets, capital, risk and operating income. The implications of this study verify the validity of the solvency theory over the self-fulfilled panic speculations. The criteria used was a high Pseudo R2 and an as high as possible Efficiency Index. The model yielded a Pseudo R2 of 89.14% and an Efficiency Index of 96.7%. The model is useful in preventing bankruptcy of a bank one year in advance.

Dynamic predictions of financial distress of the firms have received less attention in finance literature rather than static prediction, specifically in Malaysia. This study, therefore, investigates dynamic symptoms of the financial distress event a few years before it happened to the firms by using neural network method. Cox Proportional Hazard regression models are used to estimate the survival probabilities of Malaysian PN17 and GN3 listed firms. Forecast accuracy is evaluated using receiver operating characteristics curve. From the findings, it shown that the independent directors’ ownership has negative association with the financial distress likelihood. In addition, this study modeled a mix of corporate financial distress predictors for Malaysian firms. The combination of financial and non-financial ratios which pressure-sensitive institutional ownership, independent director ownership, and Earnings Before Interest and Taxes to Total Asset shown a negative relationship with financial distress likelihood specifically one year before the firms being listed in PN 17 and GN 3 status. However, Retained Earnings to Total Asset, Interest Coverage, and Market Value of Debt have positive relationship with firm financial distress likelihood. These research findings also contribute to the policy implications to the Securities Commission and specifically to Bursa Malaysia. Furthermore, one of the initial goals in introducing the PN17 and GN3 status is to alleviate the information asymmetry between distressed firms, the regulators, and investors. Therefore, the regulator would be able to monitor effectively distressed firms, and investors can protect from imprudent investment.

Introduction: Financial failure is a concept that may arise from many internal and external factors such as operational, financial, and economic items and may incur serious losses. Over-indebtedness arising from managerial misjudgments may cause high financial distress, insufficiency, and bankruptcy. In this regard, determination of effects of capital structure decisions on financial failure risk is crucial.

Aim: The main purpose of this study is to explore the relationship between capital structure decisions and financial failure risk. For this purpose, data from Borsa İstanbul (BIST) for listed food and beverage companies for the period from 2004 to 2019 is used. Another purpose of this study is to compare the financial failure models considering capital structure theories.

Method: In the study, capital structure decisions are associated with five different financial ratios; while the financial failure risk is proxied by financial failure scores of Altman (1968), Springate (1978), Ohlson (1980), Taffler (1983), and Zmijewski (1984). Therefore, five different panel data models are used for testing these hypotheses.

Findings: The results of panel data analysis reveal that capital structure decisions have statistically significant effects on financial failure risk for all models; however, those effects vary from one financial failure model to another. Also, the results show that in the models in which financial failure risk is proxied by the Altman (1968) and Taffler (1983) scores, the aggressive financial policies increase the financial failure risk. However, regarding the models in which financial failure risk is proxied by the Springate (1978), Ohlson (1980), and Zmijewski (1984) scores, aggressive financial policies decrease the financial failure risk.

Originality of the Study: To the best of our knowledge, this chapter is original and important in terms of revealing the effects of capital structure decisions on the financial failure risk and comparing the financial failure models.

Implications: The results revealed that the risk of financial failure models represented by Altman (1968) and Taffler (1983) scores are found to be statistically stronger and more successful in meeting theoretical expectations compared to other models. Therefore, it would be more appropriate to refer Altman’s (1968) and Taffler’s (1983) financial failure models in financial failure risk measurements.

We propose that in addition to its resources and capabilities, a firm’s capital structure and financial health will act as an important determinant of its attractiveness as an alliance partner. Alliances with leveraged firms are prone to unplanned termination due to financial distress, which puts at risk the value embedded in the collaboration. As a result, ceteris paribus, highly leveraged firms will be viewed as less desirable partners in the market for interfirm collaboration when compared to low leverage firms. In support of this proposition, we find that when forming an alliance firms tend to partner with other firms with similar levels of leverage: low-leverage firms partner with other low-leverage firms while high-leverage firms partner with other high-leverage firms, as well as with lower quality ones. Furthermore, we show that alliances with highly leveraged firms are more likely to involve equity participation as a form of ex post protection, especially when they involve partners with relatively lower leverage. Finally, we show that leverage is negatively related to the intensity of alliance activity, suggesting that firms also maintain lower leverage in their capital structure in order to attract potential partners. Overall our results imply that financial policies regarding capital structure have an important role to play in alliancing activity.

To create and sustain a resource-based competitive advantage, managers acquire and develop specialized resources as they grow their firms. The authors argue that an important part of committing to a resource-based strategy is a willingness to keep spending on specialized resources during periods when sales and profits are down. The authors seek to validate this conjecture by examining whether such resource-based commitment to a customer-centered strategy results in improved customer satisfaction. The authors use the stickiness of selling, general, and administrative (SG&A) expenses to capture this commitment empirically. The authors first document that future customer satisfaction is positively associated with SG&A cost stickiness, consistent with the premise that the retention of specialized SG&A resources during low demand periods helps firms to build and maintain relationships with customers over time. Next, the authors test whether expected future benefits of customer satisfaction are enhanced when SG&A cost stickiness is higher. The authors find that the positive relation between Tobin’s Q and customer satisfaction is positively moderated by SG&A cost stickiness. Finally, the authors test whether earnings persistence, a quality of earnings associated with sustained performance over time, is positively associated with the interaction between customer satisfaction and SG&A cost stickiness. The authors find that it is. Their evidence supporting these predictions is consistent with the conjecture that resource-based commitment reflected in cost stickiness is an important dimension of creating and sustaining a resource-based competitive advantage.