Chapter 7: To what extent do differences in legal systems affect cross-border insolvency? Evidence from foreign-owned Italian firms

Purpose — This chapter aims to investigate to what extent differences in legal systems affect cross-border insolvency. Specifically, it aims to answer the following research questions: What is the relationship between multinational status and firm death rates? To what extent can the legal system affect the pattern of firms’ death across countries? How can the cross-border insolvency legal rules produce firms’ death or survival through corporate restructuring and bailout? Methodology/approach — We apply survival methods and estimate a discrete-time hazard model in which we look for the effect of foreign ownership on firm death, controlling for firm- and industry-specific covariates. In doing this we analyse the determinants of firms’ death and crisis distinguishing Italian foreign-owned firms according to the legal system of the country where they have their ‘centre of main interests’ (COMI). Findings — Our main findings reveal that Italian firms owned by foreign multinationals are more likely to exit and to be in crisis than national firms. In addition, Italian foreign-owned firms which have their COMI in a Common law country, compared with those having their COMI in a Civil law country, exhibit a lower risk of death and a higher likelihood of surviving the crisis. Research limitations/implications — This analysis was limited to all Italian firms. Therefore, it might be interesting to verify if there is a sort of country/sectoral heterogeneity in the firms’ behaviour. In addition, the analysis could be extended to the Italian firms investing abroad (i.e. Domestic MNEs).