Corporate non-financial disclosure, firm value, risk, and agency costs: evidence from Italian listed companies
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Corporate non‑financial disclosure, firm value, risk, and agency costs: evidence from Italian listed companies Fabrizio Rossi1 · Maretno Agus Harjoto2 Received: 5 June 2018 / Accepted: 16 October 2019 © Springer-Verlag GmbH Germany, part of Springer Nature 2019
Abstract 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’ nonfinancial 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. Corporate managers and investors should recognize the value added from regulations that foster non-financial disclosures and ratings issued by an independent rating agency (e.g., Standard Ethics) as they both enhance firm performance and reduce risk and agency costs. Keywords Non-financial disclosures · Standard ethics rating · Firm performance · Risk · Agency costs JEL Classification G23 · G32 · G34 · M14
* Fabrizio Rossi [email protected] Maretno Agus Harjoto [email protected] 1
Department of Electrical and Information Engineering, University of Cassino and Southern Lazio, Via G. Di Biasio 43, 03043 Cassino, FR, Italy
2
Pepperdine Graziadio Business School, Pepperdine University, 24255 Pacific Coast Highway, Malibu, CA 90263, USA
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F. Rossi, M. A. Harjoto
1 Introduction Corporate non-financial disclosures have gained considerable attention from regulators, managers, investors, and academics. These disclosures, which are also known as the sustainability reports (European Commission 2011), can be defined as corporate reports that disclose a firm’s non-financial performance, specifically environmental, social, and corporate governance (ESG) performance in its effort to increase a company’s transparency. In this study, we conceptualize firm corporate non-financial disclosure as an instrument to reduce asymmetric information and conflicts of interest between managers and stakeholders (the stakeholder–agency problem) in publicly-listed firms. Using the Standard Ethics Rating (SER) as a measure of firms’ non-financial disclosure rating, we empirically examine the impact of non-financial disclosure rating on three outcomes: firm performance, risk, and agency costs. We choose to examine Italian listed firms during the 2001–2018 period because Italy is one of the countries in the European Union that has made significant regulatory changes to e
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