Italian Legislative Decrees 231/2001 and 254/2016 and firm value, risk and agency costs

What is it about?

This study examines the relationship between corporate non-financial disclosure ratings, the Italian Legislative Decrees 231/2001 and 254/2016, and three outcomes of Italian listed firms: performance, risk and agency cost. Based on stakeholder-agency theory, this study conceptualizes the role of firms’ non-financial disclosures in reducing asymmetric information and agency costs between managers and broad stakeholders. Utilizing the Standard Ethics Rating (SER) as a measure of firms’ non-financial disclosure rating, this study finds that SER ratings are positively related to firm value and are negatively related to firms’ risk and agency costs. This study also provides evidence that the adoption of Italian Legislative Decrees 231/2001 and 254/2016, along with external verifications from the SER of firms’ non-financial disclosure, has a positive impact on firm outcomes.

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Why is it important?

The European Union Directive 2014/95/EU that requires firms to report on non-financial disclosures has created waves of regulatory changes across the European Union. This study provides evidence that the adoption of European Union Directive 2014/95/EU through the enactment of Legislative Decrees 231/2001 and 254/2016 bring positive outcomes to the stakeholders, including but not limited to shareholders.

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