International Journal of Technical Research and Applications e-ISSN: 2320-8163, www.ijtra.com Volume 4, Issue 1 (January-February, 2016), PP. 200-211 200 | Page INSOLVENCY PREDICTION IN MANUFACTURING FIRMS. A COMPARATIVE STUDY BETWEEN ITALY AND TURKEY Francesco Paolone 1 , Selman Salim Kesgin 2 1 Department of Communication Science, University of Naples “Parthenope” 2 Department of Public Administration, Gazi University 1 francesco.paolone@uniparthenope.it 2 selmansalim@gazi.edu.tr Purpose – This paper investigates the prediction of failure among Italian and Turkish manufacturing companies during the global crisis. The recent financial crisis has pushed many businesses, either large or small, into bankruptcy or near bankruptcy. Given two different economic environments (Italy in recession and Turkey in expansion) and potential future global economic downturns, there is an urgent need to deeper understand the reasons behind the Italian and Turkish corporate failure. The study aims to expand the domain of financial distress by including two countries with different economic scenario. Design/methodology/approach – This paper opted for applying the Revised Altman model in order to investigate the impact of the crisis on financial distress among Italian and Turkish manufacturing non-listed public limited companies. Companies are observed over the crisis period 2008- 2013. We allocate companies in one out of three areas: alarm, grey and safe. We suggest spreading the hybrid companies who fall in the grey area over the extreme areas. By setting a threshold, we group the companies in two different clusters: with financial distress and with no, with the intention of discovering hybrid companies at the intermediate level that necessitate financial backing. Findings – The results confirm our hypotheses: the great majority of Italian manufacturing companies (72.70%) have been suffering the downturn and, consequently, increasing the likelihood of financial distress. While only the 26.68% of Turkish companies have a reasonable risk of financial distress. The findings indicate that the majority of Italian manufacturing companies have been suffering the financial crisis, while Turkey shows an opposite situation. Research limitations/implications – Because of the chosen research methodology (Z-Scores), the research findings may be less reliable because they are strongly linked to Z-Scores. Therefore, researchers are encouraged to test dynamic models further. Practical implications – The paper includes implications for the impact of the recent economic crisis and the bankruptcy prediction in two countries which portrait opposite scenarios. Originality/value – This paper fulfils an identified need to study how the global financial impact on countries with opposite scenario. Index terms- Bankruptcy, Altman’s model, Financial Reporting, Financial Distress, Accounting, Global Economic Crisis. Article Type: Research paper I. INTRODUCTION . The last decade has witnessed a massive and traumatic phenomenon: the global economic crisis which has generated the insolvency of many enterprises all over the world. The global financial crisis of 2008 is considered by many economists to have been the worst financial crisis since the Great Depression of the 1930s. It threatened the total collapse of large financial institutions, which was prevented by the bailout of banks by national governments, but stock markets still dropped worldwide. In many areas, the housing market also suffered, resulting in evictions, foreclosures and prolonged unemployment. The crisis plays a significant role in the failure of key businesses, declines in consumer wealth estimated in trillions of U.S. dollars, and causes a downturn in economic activity leading to the 2008–2013 global recession and contributing to the European sovereign-debt crisis. In today’s global economic crisis, there is much concern associated in finding the best way to measure the likelihood of bankruptcy. Many studies provided a definition of “bankruptcy” (Dirickx Van Landeghem 1994; Ward & Foster, 1997; Van Caillie, 1999; Daubie &Meskens, 2002; Charitou et al., 2004). Models were based on “financial distress” criterion (Keasey & Watson, 1991; Hill et al., 1996; Kahya & Theodossiou, 1996; Doumpos & Zopoudinis, 1999; Platt &Platt, 2002) or on other financial distress events such as cash- flow insolvency (Laitinen, 1994), loan default (Ward & Foster, 1997), capital reconstructions, informal government support and loan covenant renegotiations with banks (Taffler & Agarwal, 2003). A more recent definition is provided by Pongsatat et al. (2014). They argued that a failed or financially distressed company is one that either: (1) had been liquidated during the current year, (2) had received an audit that expressed concern about the going concern capabilities of the firm, (3) had been closed down by governmental authorities, (4) had been asked