In 2013, the NYU Stern School of Business, Prof. Edward Altman, published a research study with Prof. Alessandro Danovi and Prof. Alberto Falini, regarding the application of the Z”-Score model.

(Z” score model is a rating model used predict business defaults released in ’95 by Altman himself) to Italian manufacturing companies subject to extraordinary administration proceedings.

The authors discovered that the Z”-Score, originally created for developed countries, was a trustworthy indicator for verifying the financial health of manufacturing companies in Italy.

Although the model does not precisely assess companies’ financial health in Italy (considering the characteristics of the Italian market to the fullest), it is one of the most reliable indicators of business default. Therefore, we have decided to apply the Z”-score to the entire population of mid-sized Italian manufacturing enterprises (following the EU Recommendation n. 2003/361/CE criteria) from 2016-2020.

Fonte: Aida, BvD

The graph demonstrates that the percentage of mid-sized Italian manufacturing enterprises that have faced downgrade ratings has dramatically increased from 2016-2020 (from 40.53% to 50.80%).

At the same time, the percentage of firms that depict a decrease in rating for two consecutive years, as well as three consecutive years, has strongly increased as well. 

Overall, mid-sized Italian manufacturing enterprises have been facing a constant decrease in Z”-Score (demonstrating a decrease in economic and financial strength) for five consecutive years.

Additionally, the graph below portrays that the number of investment-grade companies has significantly decreased in the last five years (from 58.88% to 56.77%), whereas the number of D-grade (default state) companies and C-grade (high vulnerability) companies has seen a massive increase. 

This clearly demonstrates that mid-sized Italian manufacturing enterprises are getting weaker, with the number of D-grade and C-grade firms constantly increasing. 

Fonte Aida, BvD

Mid-sized enterprises have an important role in the Italian economic system, unfortunately some enterprises portray weak governance systems, absence of managerial teams, poor digital frameworks, lack of automation, and the inability to create partnerships & agreements with other international players.

It is extremely important to aid these enterprises and their entrepreneurs in order to recover performances and reacquire a strong competitive role in the global business environment.