Ethical Behaviour and Corporate Financing. The Case of ‘Legality Rating’

The financial crisis has heightened awareness of ethical and legal issues in the business context. Corporate ethical behaviour is increasingly measured through sustainability ratings. Since 2012, in Italy, the introduction of a sustainability rating, namely the legality rating (LR), has served as an innovative 'label' for socially responsible companies from both legal and ethical standpoints. This study employs a unique dataset of 3905 private Italian firms and the Propensity Matching Score to investigate differences in debt costs and corporate financing between companies holding LR and those not. The findings confirm that LR positively influences debt cost and corporate financing by facilitating access to external financing and supporting the risk mitigation perspective. This analysis enriches the literature on the relationship between sustainability ratings and financial impacts by demonstrating the tangible benefits of LR. Regarding managerial implications, this study offers valuable insights into the advantages of a reward system that promotes 'honest' behaviour in corporate practices.