Does Fraud Risk Affect Legality Ratings? Evidence from Italian Listed Firms.

Within the framework of the United Nations 2030 Agenda for Sustainable Development, Goal 16 (Peace, Justice and Strong Institutions) aims to combat all forms of organized crime and significantly reduce corruption and illegality. In this context, Law No. 190 of November 6, 2012, introduced the Legality rating, which serves as an institutional mechanism designed to promote ethical behavior and integrity among Italian firms. This study examines whether the elements considered in the attribution of the legality rating can indirectly capture factors associated with financial statement manipulation. Results reveal no significant relationship between the legality rating and the likelihood of fraudulent reporting, suggesting that the rating captures formal compliance rather than substantive financial integrity. The findings highlight the need to enrich the legality rating framework with quantitative indicators of financial misconduct to enhance its role as a comprehensive integrity metric.