Ownership structure and financial default risk in Italian private firms

Purpose: This study investigates the relation between ownership structure and financial default in private firms, focusing on two key dimensions: ownership concentration the share held by the top three shareholders and institutional ownership the share held by institutional investors. Design/Methodology/Approach: The empirical research augments traditional default prediction model with ownership structure indicators, using an unbalanced panel of 28,562 Italian private firmyear observations from 20122019. Findings: The results show that ownership concentration has a significant positive association with default likelihood, while institutional ownership reduces the probability of default. Further, I find that default prediction models including ownership structure variables have a higher predictive ability than the traditional default prediction model. Originality/Value: This study contributes to the literature on ownership structure and financial default by providing empirical evidence

on private firms, a setting where marketbased predictors are unavailable. It shows that ownership concentration and institutional ownership systematically influence financial stability and improve default prediction accuracy. Practical implications: This study suggests that ownership structure indicators can be integrated into credit risk assessment and early warning systems, as promoted by recent European Union insolvency frameworks, to strengthen monitoring of financially distressed private firms. [Publisher's text]