1 / 24

P. Di Martino , School of Arts, Histories, and Cultures, Manchester University

Insolvency law and corporate governance: a view from Twentieth-century Italy or How to sink a firm to save a family?. P. Di Martino , School of Arts, Histories, and Cultures, Manchester University M. Vasta , Department of Economics, University of Siena (Italy).

ruana
Download Presentation

P. Di Martino , School of Arts, Histories, and Cultures, Manchester University

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Insolvency law and corporate governance: a view from Twentieth-century Italyor How to sink a firm to save a family? P. Di Martino, School of Arts, Histories, and Cultures, Manchester University M. Vasta, Department of Economics, University of Siena (Italy)

  2. Prologue: a country with no “firms” Italy: the absence of “Coesian” firms • Rapid turnover, small and young joint-stock companies • inefficient technologies and business practices; absence in strategic sectors • Governance: family-dominated Contrary to firms, dominating families tend to be stable

  3. The Historical problem Are bankruptcy and insolvency laws and procedures guilty as well? • bankruptcy laws and practices fundamental to firms’ selection and restart after failure • Risks: excessive exposition to shocks • Italian law and practices inefficient in this regard Evidence and methodology: Quantitative sources (macroeconomic data 1920-1970), archival sources (failures in Milan 1920-1930s) plus some complementary sources for 1924 and post WWII.

  4. Introduction Presentation structure: I. The institutional framework II. Quantitative overview III. Qualitative analysis IV. Conclusions

  5. I. The institutional framework Available insolvency procedures Before 1942 • Fallimento (liquidation and assets distribution) • Concordato fallimentare (agreement with creditors to ease liquidation) • Concordato preventivo (composition with creditors alternative to bankruptcy) • Voluntary liquidation: allowed but unregulated After 1942 • Amministrazione controllata (one year moratorium and appointment of new management)

  6. I. The institutional framework Hypothesis: no efficient instrument to allow a real “re-start” ever available. • Concordato: selection based on “moral” considerations; very strict conditions (guarantee of paying 40% unsecured debts to be paid; no assets relinquishment) limited its usage and often led to liquidation. • Voluntary liquidation: no restarting plan; no creditors lock-in = dead of the company • Amministrazione Controllata: Not a solution for small companies; no selection based on future viability; no restarting plan

  7. Percentage of concordato preventivo and amministrazione controllata on total procedures (1904-1980)

  8. Percentage of concordato preventivo and amministrazione controllata on total procedures (joint-stock companies only, 1947-1980)

  9. Percentage of joint-stock companies using any kind of insolvency procedures (1947-1980)

  10. II. Quantitative analysis - results 1) Fallimento (and concordato fallimentare) the most used procedures (Before 1942 they accounted for about 96-98%) 2) The introduction of the amministrazione controllata. changed little (only in the 1970s amministrazione controllata and concordato together covered about 10% of cases) 3) A.c. was mainly used by S.p.a. (joint-stock limited-liability companies) (up to 20% of cases) 4) However only about 1% the S.p.a population ever used any insolvency procedure.

  11. III. Qualitative analysis Main Sample: • 135 companies failed in Milan between 1923 and 1932 • about 2/3 of all joint-stock companies failed in Milan • Milan = about 1/3 of Italian companies)

  12. Insolvency in Milan by outcomes

  13. III. Qualitative analysis Most of companies failed because of structural problems and/or frauds; however other problems appear: • Concordato preventivowas difficult to get • No attention for innovative entrepreneurs and/ or viable companies • Companies used voluntary liquidation, but no re-launch plan was linked to it (or creditors lock-in mechanism); • voluntary liquidation often resulted in bankruptcy, even because of the action of one single creditor

  14. III. 1 Concordato preventivo 1) Ex-ante guarantee 40% (12 out of 17 concordato fallimentare paid more than 25%, the English treshold). Court’s screening (complicated procedure and imperfect information) • Società Anonima Circes (1924) “encountered many difficulties, essentially of procedural nature.” • Cartiera Albano Franchini: better information available during liquidation than before. Creditors’ screening (coordination problem) • Fonderia di Desio, friendly agreement (50% of debts), turned down by self-interested creditors “Everyone looking after their own interest”

  15. III.1 Concordato preventivo Courts’ decisions: no relevance of innovativeness or viability • Number of concordati preventivi: 3 • Innovative: 31 traditional: 111 Unknown 9. • Viable: (bankruptcy of their own debtors, lack of capital, mismanagement, exogenous short-term shocks)27, Unviable 96, Unknown 30

  16. III.1 Concordato preventivo • Giglio, ‘Schumpeterian’ company: early 1920s it first produced a prototype of side lights for cars; bankruptcy • De Capitani & F.lli Progresso Agricolo Ferraniense (concordato allowed) formal guarantees provided and the modality of payment, no other criteria considered

  17. III. 2 Voluntary liquidation Inefficient formal institutions = rush into voluntary liquidation 1924: hundred and sixteen joint-stock companies disappeared, but only 12 official procedures were opened hard to get creditors to agree on a re-launch program • Magazzini 33and Industrie Meccaniche Servadei Benettiagreement with creditors tried only after that an earlier attempt to liquidate failed.

  18. III. 2 Voluntary liquidation Moreover, liquidation often led to bankruptcy of solvent companies; 37 companies failed during liquidation, including: • Bacapa assets exceeding the nominal value of liabilities • Società Anonima Cooperativa “La Casa” able to pay all debts but technical mistakes during the liquidation • Industria Dattilografica and the Federazione Casearia Italiana condemned to bankruptcy by one single creditor (thirty thousands lira against capital of two millions)

  19. III.3 Amministrazione Controllata No direct evidence, counterfactual; Two questions: was it useful? Was it easy to access? Was AC useful? • Management replacement main of sole cause of failure in 7 cases, among the causes in 18. • However, need to re-capitalise main problems among viable companies: AC was no solution

  20. III.3 Amministrazione Controllata Was AC available? • Ac based on replacement of management • Failed companies were small: no separation between management and property • About 1/3 of Italian companies larger than 1 Million lira capital, about only 10% in the sample of bankrupted companies, 13% in the one of disappeared companies.

  21. Size Tot. sample Up to 10 11-50 Tot. under 50 51-100 101-300 301-500 501-999 1000 or above Unknown Number of companies 153 33 31 64 13 18 16 5 14 23 III.3 Capital of companies bankrupted in Milan (thousands of Lira)

  22. Conclusions (I) 1) official procedures: failure to provide efficient restarting mechanisms. • Concordato preventivo was hard to get and not selective pro viable/innovative firms • AC: only applies to few big companies with management problems 2) over-use of voluntary liquidation often leading to firms’ death 3) our view; Italian joint-stock companies overexposed to “natural” instability died more often and younger.

  23. Conclusions (II) • Why an inefficient legislation? • Fuzzy law = legitimisation of business consultants, often operating as receivers during insolvencies • Business consults helping asset-stripping by “families”, (De Cecco). • Especially during liquidation and restarting? Companies die, families survive?

  24. Conclusions (III) • La Porta et al. (2000): corporate governance and exploitation of minority stockholders; Guinnaine et al.: legal regimes allow different systems of governance. • Italy: all forms of governance were allowed (and used), but exploitation was based on informal bending of inefficient formal institutions.

More Related