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Legality rating and corporate efficiency: evidence from a conditional nonparametric frontier analysis

Author

Listed:
  • Marco A. DeBenedetto

    (University of Calabria)

  • Michele G. Giuranno

    (University of Salento)

  • Camilla Mastromarco

    (University of Calabria)

  • Diego Ravenda

    (TBS Business School)

  • Pierluigi Toma

    (University of Salento)

Abstract

Promoting legality and productivity is a central issue in modern economies. In this paper, we investigate the implications of a public policy that aims at achieving these goals through the adoption of the so-called legality rating (LR). The latter reduces corporate risk uncertainty by abating asymmetric information between companies that use good legal, fiscal and ethical practices and the credit system. We match companies whose legal and ethical practices have been certified by the Italian government—through the assignment of the LR—with a sample of unrated firms, and apply recent advances in nonparametric frontier analysis to assess the economic performance. We highlight a positive relationship between legality rating and firms’ production efficiency. Our findings also show that legality rating policy is an effective tool to enhance inter-regional technological catching-up of businesses.

Suggested Citation

  • Marco A. DeBenedetto & Michele G. Giuranno & Camilla Mastromarco & Diego Ravenda & Pierluigi Toma, 2024. "Legality rating and corporate efficiency: evidence from a conditional nonparametric frontier analysis," Empirical Economics, Springer, vol. 66(5), pages 2137-2168, May.
    • Handle: RePEc:spr:empeco:v:66:y:2024:i:5:d:10.1007_s00181-023-02511-w
    DOI: 10.1007/s00181-023-02511-w
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    Keywords

    Legality rating; FDH; Signalling; Public policy; Political economy;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • K00 - Law and Economics - - General - - - General (including Data Sources and Description)
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General

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