Abstract

This paper examines a sample of 72 firms listed on the Italian Stock Exchange between 2007 and 2011 which
were in serious economic difficulty. These companies adopted a series of measures to find a way out of the crisis,
including management changes, divestment of assets, debt restructuring and the issuing of new shares. The paper
aims to verify the existence of a preference order for responses to the economic crisis. Unlike previous research,
a methodology has been adopted which analyses the content of the Management Commentary in order to
identify both the proposals presented by managers and the measures actually adopted. The result of the analysis
shows that the different types of measures to solve the crisis are often proposed and/or realized in a combined
manner. Although the existence of a pecking order is not immediately obvious, a preference for management
changes seems to emerge, whereas debt renegotiation and the issuing of new shares appear to be used only as
secondary responses. Furthermore, based on the results of the logistic regression model, this paper suggests that
the reasons for choosing the types of restructuring measures appears to be mainly related to their profitability.
Managers of low profitability firms intervene most frequently on the capital structure rather than adopting
general management changes and divestment plans. This result is consistent with the Pecking order theory which
deals with the hierarchy of funding sources followed by firms.

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