Financial difficulties of Italian local authorities: a financial critical elements analysis to identify prediction and diagnosis models

Recently, business management literature has been enriched by numerous contributions on corporate crises and related processes of reorganization or liquidation. The majority of these studies have always been about private sector business. Nevertheless, crisis situations can arise in any type of business (Guatri, 1986; Manes Rossi, 2000), just as the same concept of crisis is intimately related to the notion of company, which is an open system and, therefore, constantly changing (Manes Rossi, 2000). Based on these considerations, the analysis of crisis situations is particularly interesting, with specific reference to non-profit public companies (Guatri, 1986) and, more specifically, to local authorities, in view of their significant importance within the public field and the abundant existing legislation completely revamped, however, in recent years. There is one important aspect on which it is necessary to focus our attention about local authorities crisis situations: in fact – given the institutional and public purposes that led to their birth – they cannot dissolve, but they need to live and provide essential community services and goods. It is therefore paramount to identify the early onset of the crisis, before imbalances and inefficiencies will irreversibly affect the company life. The primary objective in this direction is to create a performance reporting (Borgonovi, 2009) to provide an adequate response capability in situations of difficulty or crisis, leading to the systematic dissemination, even in public, of real and concrete benchmarking techniques, essential for an effective management of local authorities (Ricci, 1998; Savioli, 1995)