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). Originality/value Overall, our study enriches our understanding of the determinants of foreign-owned firms’ survival in Italy and highlights the important role assumed by the countries’ legal environment. Although the vast majority of legal systems establishes that business crisis management is no longer aimed at repressing and sanctioning, but rather at preserving the entrepreneurial complex, and rescuing and maintaining business activity, we provide some insights into how differences between Common law countries and Civil law countries affect cross-border insolvency.