Ethic behaviour and Corporate financing: evidences from legality rating

The legality rating represents an institutionalised indicator of firms’ ethical behaviour, introduced by the Italian legislative system. It certifies that firms fulfil certain requirements of legality and sustainability. By introducing the legality rating, the Italian legislator has institutionalised ethic values, recognizing and rewarding firms’ ethical behaviour. Banks are required to reward firms with legality rating, favouring them in the access to debt financing. Additionally, other stakeholder groups, such as employers, suppliers, governments and community may reward companies with legality rating, favouring them in the access to different financing sources, from bank loans (Kim et al., 2014; La Rosa et al., 2018) to trade credit (Xu et al., 2019; Zhang et al., 2014). Limited literature empirically investigates the legality rating and it is almost silent in relation to its effects on corporate financing (Caputo and Pizzi 2019). As far as we are aware, our study is the first study which deepens the investigation of the effects of legality rating on access to external financing, Our empirical investigation aims to study the effects of the legality rating on cost of debt and leverage level. We expect that legality rating increases the trust from the debt lender, leading to a decrease in the cost of debt and to an increase of the leverage level. To reach our aim, we use propensity score matching in an attempt to control for differences in the cost of debt and in the leverage level between all the Italian firms, which hold legality rating and all the Italian firms, which do not. We conduct the analysis by using a dataset of Italian firms, created by combining the financial data downloaded from AIDA database, with information about legality rating extracted from the official database of the Guarantor Authority for Competition and Market (AGCM) (AGCM, 2018)