Corporate and regional governance antecedents of the Legality Rating of private Italian companies

As Legality Rating (LR) for Italian companies was only recently introduced, it is an under-investigated phenomenon that is difcult to univocally interpret or structure within a well-defned theoretical framework. Given that certain governance characteristics can drive strategic decisions and have a crucial role to play in the legitimacy process, this paper sets out to explore how governance can infuence a frm’s attitude and signal its socially responsible behaviour, in terms of legality. We investigated both corporate and regional governance antecedents using a sample of 1049 private Italian frms with a listed LR in 2016. We analysed hierarchical linear models with the LR score as a dependent variable, ranging from one to seven points. As a frst in governance studies, we adopted the European Quality of Government Index to investigate diferences in regional-level governance. We found that board size, ownership concentration, foreign ownership and being a cooperative were positively related to LR. Our results show that, where governance features make frms more inclined to safeguard their reputation, the LR is higher. Thus, rather than encouraging changes oriented to greater respect for the principles of legality, the LR primarily highlights companies that already behave honourably. Finally, a battery of robustness tests and further analyses on the role of regional governance quality reveal a substitution efect between regional and corporate governance.