How Companies Overcome a Crisis

THE LARGER AND MORE INDEBTED A COMPANY IS, THE BETTER ITS CHANCES OF MAKING IT THROUGH A CRISIS. AS LONG AS THEY MAKE THE RIGHT MOVES, AS EXPLAINED IN A STUDY BY FRANCESCO PERRINI

“A crisis is an extraordinary event. It can not be tackled using ordinary tools. Corporate, financial and legal expertise must all be integrated. It is also fundamental to react quickly: the new Italian law on business crisis and insolvency provides for warning mechanisms aimed at promptly resolving the crisis”.
 
Francesco Perrini, Full professor of corporate distress and turnaround management, is researching the many dimensions of business restructuring. “The literature on corporate crises yielded non-univocal results on the effectiveness of business restructuring”, he says. In order to assess the best strategies to be applied to tackle a business crisis, professor Perrini has analyzed the histories of some 700 listed manufacturing companies operating in Italy, France, Germany, United States, England in 2002-2010.
 
The research is still going on, but he can provide some preliminary results. “First, the larger and more indebted the company, the greater the likelihood of overcoming the crisis. This is the effect of the action of the stakeholders involved who want the company to survive. Secondly, the legislative context influences crisis timing. In the U.S., restructuring lasts on average just over a year, in Italy more than three years. Lastly, restructuring is four times more likely to be successful when the CEO is quickly replaced”.
 
There are also some managerial implications. “A multidisciplinary approach that takes into account all the categories of restructuring – managerial, operational, portfolio, and financial – should be adopted. Their integration explains 88% of all successful restructurings”.

Read more about this topic:
Financial Crises: Who Can Predict Them and How. By Carlo Favero
The Ratio of Uncertainty
The Lunar Algorithm That Predicts the Future
The Controllers That Report the Risk of a Crisis
 

by Claudio Todesco