Public certification, information asymmetry, and investment

Abstract In Italy, creditworthy firms not involved in corruption, accounting frauds, and connections with organized crime may benefit of cheaper loan interest rates thanks to the Legality Rating. We provide evidence that, upon receiving this public certification, firms increase their tangible capital expenditure by about 3-5% of the median capital-to-total asset ratio. The effect is stronger in provinces where it is more difficult for the banks to assess firms’ creditworthiness. This latter finding highlights the potential role of public signals in supporting investment and local development.