Market Incentives and Regulators Activity Shaping Financial Information: An Analysis of the Net Debt Disclosure in Italy

Transcription

1 Market Incentives and Regulators Activity Shaping Financial Information: An Analysis of the Net Debt Disclosure in Italy Abstract Net Debt is widely used either as a component of equity valuation methods or as a financial performance measure. When adopted for valuation purposes, its boundaries largely depend on the appraisers measurements choices. As a performance indicator, instead, it requires a standard definition in order to enhance financial statements understandability and comparability. For this reason, in 2006 the CO.N.SO.B. has issued a new regulation pursuing to improve the quality of information concerning firms net indebtedness. The issue this regulatory intervention raises is twofold. On the one hand, it is not clear whether a mandatory regime on Net Debt disclosure is more effective and more efficient than a voluntary one. On the other hand, there is no definite evidence that CO.N.SO.B. Net Debt computational scheme offers relevant information to users and, in particular, to creditors. This paper sheds light on this topic by analyzing factors affecting companies choice to comply with CO.N.SO.B. Net Debt disclosure scheme. In particular, a relation between the adoption of the CO.N.SO.B. rule and some financial/corporate governance variables is tested in order to understand the role played by Net Debt disclosure and the usefulness of a regulatory intervention on this topic. Key Words: Net Debt; Net Debt Disclosure; Disclosure Quality; Voluntary Disclosure; Accounting Regulation. 1

2 1. Introduction Economic and accounting theory have offered several arguments supporting the role played by market-based incentives in leading to an optimal corporate disclosure level (Grossman, Hart, 1980; Grossman, 1981; Milgrom, 1981) ( 1 ). In fact, theoretical models have been proposed to demonstrate a strong and positive relation between firms disclosure quality, market liquidity and the cost of capital (Diamond, Verrecchia, 1991; Kim, Verrecchia, 1994; Hughes et al., 2007; Lambert et al., 2007). In the meanwhile, empirical studies confirm such a theoretical framework and extend to the debt market the results briefly described above (Botosan, 1997; Healy et al., 1999; Leuz, Verrecchia, 2000; Hail, 2003). Indeed, although banks can benefit from superior information about a firm s prospects than other outside investors categories (Diamond 1984; Fama, 1985), a condition of information asymmetry still characterizes the relationships between private lenders and borrowers and decreases the efficiency of the debt contracting process. Sengupta (1998), Mazumdar et al. (2000), Miller and Puthenpurackal (2002) support the above intuitions, by documenting an inverse relation between the cost of debt and disclosure quality. Recently, Kim (2007) highlights a significant and negative association between the voluntary adoption of high quality accounting standards (IAS/IFRS) and the effective interest costs of raising debt. Despite the strength of theoretical intuitions and empirical evidence supporting the voluntary disclosure hypothesis, several reasons have been stressed in favor of a mandatory disclosure regime (Leuz, Wysocki, 2008). In fact, the non-intervention approach assumes that outside investors are able to price securities according to the quality of the information and the effectiveness of the protections offered by firms whose stakes they hold. However, the high costs associated to the process of gathering and evaluating all relevant information useful in an appreciation of firms transparency could discourage market participants from carrying out such a deep examination and eventually lead to a market failure situation (Gordon, 1989). Moreover, the contractual incompleteness characterizing corporate contracts could induce managers to adopt an ex post opportunistic behavior to the detriment of shareholders and creditors (Bratton, McChaery, 2001). ( 1 ) Such a fundamental research stream is based on the well-known unraveling argument. For a detailed literature review on this topic: Graham et al., 2005; Leuz, Wysocki,

3 For this reason, a mandatory regime is preferable to a voluntary one whenever it serves as a low-cost commitment device (Mahoney, 1995) ( 2 ). Concerning the debt contracting process, the risk of accounting manipulations aiming to transfer wealth from lenders to the borrowers has been already hypothesized and documented. In particular, empirical evidence highlights a positive relation between the probability of debt covenants violation and the existence of abnormal accruals or incomeincreasing accounting choices (Sweeney, 1994; Healy, Whalen, 1999; Dechow, Skinner, 2000; Sercu et al., 2006; Prencipe et al., 2008). Moreover, in order to meet creditors claims, window dressing of financial leverage has been detected by the accounting literature. Abdel-khalik (1981), Godfrey and Warren (1995) and Beattie et al. (2000), for example, point out a misuse of the lease accounting treatment in order to influence the magnitude of firms long-term debt. Engel et al. (1999) and Yahanpath and Williams (2009), instead, stress the possibility of a classification management of hybrid financial instruments. Finally, a recent article by Owens and Wu (2011) analyzes the downward window dressing activity associated to short-term borrowings contracts such as repos and federal funds liabilities. While the above cited articles focus their attention on income or balance sheet manipulations, this paper analyzes the disclosure quality of indebtedness, assessing a possible relation between the quality of the information delivered about of a firm financial leverage and its credit risk profile. In particular, we examine the disclosure of Net Debt and collect evidence in order to evaluate whether managers use information about such a performance indicator in order to offer a biased picture of an entity s liquidity and solvency position. In fact, as it will be discussed in the next session, either the academic literature or the accounting profession have not yet reached a common position on the Net Debt disclosure. Indeed, a considerable heterogeneity characterizes the definition of Net Debt. Moreover, the content of the disclosure regarding such a performance indicator has not been clearly identified, and the documents delivering information about a company s net indebtedness vary considerably. The managerial discretion associated to the unregulated environment could be exploited by the insiders of the firm to deliver private information useful for a better assessment of their ( 2 ) Further potential rationales for a regulatory mechanism that explicitly mandates the content of what should be disclosed are based on the public good hypothesis and the externalities-based market failure hypothesis (Coffee, 1984). 3

4 company s prospects; however, a lack of standardization might also allow managers/controlling shareholders to undertake opportunistic behavior to the detriment of minorities/creditors. In such a scenario, with the intent to enhance Net Debt disclosure quality, increase financial reporting comparability and tackle window dressing activities, in 2005 the Committee of European Securities Regulators (CESR) has issued a Recommendation proposing for the first time the publication of a rigid scheme about firms Net Debt ( 3 ). (INSERT TABLE 1) However, the issue this regulatory intervention raises is twofold. On the one hand, it is not clear whether a mandatory regime concerning Net Debt disclosure is more effective and more efficient than a voluntary one. On the other hand, there is no definite evidence that CESR s Net Debt computational scheme offers relevant information to users and, in particular, to creditors. By analyzing Italian listed companies Net Debt disclosure, this paper contributes to shed light on this topic. Indeed, the Italian institutional context provides an ideal setting to assess the role played by net indebtedness disclosure. In fact, Italy is a bank-oriented country (Demirguc-Kunt, Levine, 2001) and information pertaining to firms gearing level is quite relevant. Moreover, in 2006 the Italian Stock Exchange Commission (CO.N.SO.B.) has adopted CESR s Recommendation, forcing Italian listed companies to deliver a standardized disclosure about their indebtedness in the notes to financial statements ( 4 ). The remainder of the paper proceeds as follows. The next section examines the notion of Net Debt in the accounting literature and standards. Section 3 carries out an empirical analysis describing the nature of Net Debt disclosure and assessing the compliance degree of Italian listed companies to the CO.N.SO.B. requirements. A binomial logistic regression model is then developed on a sample of 159 firm-year observations from ( 3 ) We refer to the CESR s Recommendations for the consistent implementation of the European Commission s Regulation on Prospectus n. 809/2005, January According to the CESR s Recommendation, issuers should provide disclosure of Net Debt in the short term (cash and cash equivalents minus current financial debts) and in the medium-long term (net current financial indebtedness plus non-current financial indebtedness). ( 4 ) We refer to the Consob Communication DEM/ , July

5 2006 to 2008 in order to detect factors affecting companies choice to comply with CO.N.SO.B. Net Debt disclosure scheme. In particular, a relation between CO.N.SO.B. rule adoption and some financial and corporate governance variables is tested in order to understand the role played by Net Debt disclosure and the usefulness of a regulatory intervention on this topic. Section 4 concludes. 2. The notion of Net Debt in the accounting literature and standards Net Debt can be roughly defined as financial liabilities that an entity classifies in the financing section together with the resources available to service those financial liabilities (IASB, 2010, par. 4). This accounting figure is widely used either as a component of equity valuation methods or as a partial indicator of a company financial performance ( 5 ); consequently, its content differs according to the information needs it contributes to satisfy. Indeed, in the Unlevered Discounted Cash Flow Model, Net Debt plays a residual role being mainly a function of the items considered to assess the enterprise value and its boundaries depend on the appraiser s measurement choices (Penman, 2007). On the contrary, as a performance indicator, Net Debt should be explicitly defined in order to provide an understandable and comparable picture of a firm s credit standing. In fact, the existence of accounting options pertaining to recognition and measurement criteria indirectly affects any accounting based performance indicator. At the same time, the absence of a complete guide concerning the nature of Net Debt allows managers to manipulate data by picking up assets and liabilities that help them to reach pre-set gearing targets. However, a brief review of the accounting literature and professional documents highlights a weak attention paid on this topic by scholars and standard setters. As a result, a common definition of Net Debt as a performance indicator is still lacking, and any attempt to impose a specific configuration risks to be arbitrary and subjective (IASB, 2010). Following a conservative approach, some scholars measure Net Debt by adding current financial assets (cash and cash equivalents) to the short- ( 5 ) As a performance indicator, Net Debt is usually adopted together with other financial figures to set up fundamental solvency ratios. For example: Net Debt/Total Assets; Net Debt/Equity; Net Debt/Sales; Ebitda/Net Debt. 5

6 term and long-term financial liabilities (Damodaran, 2002; Sostero, Ferrarese, 2002; Massari, Zanetti, 2004; Guatri, Bini, 2005; Elliot and Elliot, 1997). Although such a structure decreases the probability of an underestimation of the insolvency risk, it threatens a truthful representation of a firm s net indebtedness, as it does not provide a temporal and functional consistency between the items involved. For this reason, a recent interpretation matches financial liabilities with financial assets, according to the time interval they require to be transformed in cash outflows/inflows (Mechelli, 2008; Potito, 2009; Subramanyam, Wild, 2009; Teodori, 2009; Pizzo, 2010). This computational scheme adds to the Net Current Financial Indebtedness (short-term financial liabilities plus liquidity and current receivables) the difference between long-term financial liabilities and noncurrent financial assets. The asymmetric condition characterizing the previous configuration is mitigated; however, the introduction of long-term financial assets decreases the realization probability of the positive components of the Net Debt, negatively affecting the performance indicator s reliability. Uncertainty and lack of clarity also characterize professional contributions on this topic. The International Accounting Standard n. 1 simply indicate the minimum content of the Net Debt, while cash and cash equivalent are the only line items whose meaning is investigated by the International Accounting Standard n. 7 ( 6 ). In a recent Staff Draft ( 7 ), the IASB and FASB have jointly deepened the definition of Net Debt and the nature of the relative disclosure. In this document, they remind the impossibility to have a common definition of Net Debt and, consequently, they do not require a separate disclosure. A simple analysis of the changes in balances of the line items that usually constitute a firm s net indebtedness (debt categories, short-term investments and finance leases) is instead suggested, allowing users of financial statements to set-up their own performance indicator. (INSERT TABLE 2) ( 6 ) International Accounting Standard Board, IAS n. 1, Presentation of Financial Statements, International Accounting Standard Board, IAS n. 7, Statemment of Cash Flows, ( 7 ) International Accounting Standard Board, Staff Draft of Exposure Draft, Financial Statement Presentation,

7 At the moment, the already mentioned CESR s recommendation represents the only normative intervention on Net Debt Disclosure. However, as this brief literature review has showed, the CESR s Net Debt configuration is not fully supported neither by the accounting literature nor by the standard setters, while little if any empirical evidence concerning the usefulness of such a computational scheme has been collected. For this reason, the next section presents an empirical examination of the Net Debt disclosure delivered by 60 Italian listed companies from 2005 to This analysis firstly allows appreciating the level of the voluntary adoption of the CESR s recommendation in Secondly, by monitoring the information on net indebtedness published by the Italian companies during the period, it observes the impact of the Consob mandatory regime on the firms net debt disclosure quality. Finally, through the development of a multivariate regression model, it helps to detect variables affecting companies choice to comply with CESR/Consob scheme, collecting some clues about the role played by net debt disclosure and the usefulness of a regulatory intervention on this topic. 3. An empirical analysis 3.1 Sample Selection and Descriptive Statistics The sample of 60 companies has been drawn from the total number of firms listed at the Milan Stock Exchange, after excluding for: a) companies subject to foreign law; b) companies with stock trading suspended; and c) banks, insurances companies and financial services firms. The number of the selected companies equals the 20.27% of the whole population (43.16% in terms of market capitalization) and the 25.75% of the listed companies not belonging to the excluded categories (67.80% in terms of market capitalization). 7

8 Number and Market Capitalization of the Drawn Sample Firms Number Capitalization Listed Companies at 31/12/ , Excluded Firms , foreign law firms 5 - companies with stock traded suspended 7 - banks, insurances and financial services firms 49 Population without excluded firms , Selected Sample , Selected firms over the whole population 20.27% 43.16% Selected firms over the population without considering banks, insurances and financial firms 25.75% 67.80% Table 3 presents a detailed list of the drawn firms. (INSERT TABLE 3) For any of the selected firms, the consolidated financial statements published during the period have been collected and information about net indebtedness has been examined in order to assess the quality of Net Debt disclosure and the compliance degree with respect to the CO.N.SO.B. requirements. At the end of the 2005 fiscal year, the 22% of our sample delivered no information about their net indebtedness. Moreover, none of the firms producing a Net Debt disclosure has voluntary adopted the CESR computational scheme and, consequently, the comparability and understandability of the information concerning Net Debt is extremely low. In fact, the 4.2% of this sub-sample has simply adopted a Net Current Financial Indebtedness configuration (short-term financial liabilities plus liquidity and current receivables). At the same time, firms extending their disclosure to the medium-long term financial items differ with regards to the conservatism degree of the measurement process. The 47% presents a less conservative Net Debt configuration by adding to the long term liabilities the total amount of non current financial assets. Finally, a high heterogeneity also characterizes the documents selected to convey Net Debt disclosure. The 69.5% of the firms communicate their indebtedness through the Management s Discussion 8

9 & Analysis; the 17.5%, instead, uses the Notes to financial statements to deliver this information, while the 13% includes a scheme on Net Debt in both documents. An analysis of the financial statements highlights the impact of the CO.N.SO.B. rule on the quality of Italian listed companies disclosure. The clearest consequence of such a regulatory intervention is represented by the higher number of firms communicating their net indebtedness and by a greater homogeneity with regards to the document used to deliver this information. In fact, in 2006 only 2 over 60 firms fail to produce a Net Debt disclosure (1 firm in 2008), and more than the 80% of the observed firms transmit Net Debt disclosure through the Notes to financial statements. However, the content of this information is still extremely mixed. Only the 16.6% of the observations has explicitly adopted the CO.N.SO.B. scheme. The rest of the sample departs from the Italian Stock Exchange disclosure model either by limiting the information to the Net Current Financial Indebtedness (1.7 percent) or by adding the non current financial assets to the CO.N.SO.B. computational scheme (72.4 percent). (INSERT TABLE 4) 3.2 A Multivariate Analysis The descriptive analysis has stressed a weak compliance degree with regards to the CO.N.SO.B. requirements and a high heterogeneity in the Italian listed companies Net Debt disclosure. By carrying out a multivariate analysis on a sample of 159 firm-year observations from 2006 to 2008, this section aims at examining factors affecting firms choice to comply or not with CO.N.SO.B. rule, collecting some clues about the role played by net debt disclosure and the usefulness of a regulatory intervention on this topic. At this purpose, the following binary logistic model is developed: 9

10 The dependent variable Compliance equals 1 if the firm adopts the CO.N.SO.B. Net Debt disclosure scheme, and 0 otherwise. Then, in order to assess a possible misuse of the Net Debt disclosure, we analyze the relation between Compliance and some financial ratios whose value is strictly correlated to the firm s gearing level. For this reason, the independent variables include the interest expenses over interest-bearing debts ratio (CostOfDebt), the interest-bearing debt over total assets ratio (Leverage), and the Ebitda coverage, measured by dividing the Ebitda by the total debt (EbitdaCov). Moreover, a dummy variable Covenant has been introduced to assess the impact on the Net Debt disclosure of contractual arrangements between lenders and borrowers. Finally, the interaction variables Cov*Lev and Cov*EbitdaCov measure how the existence of debt covenants affects firm j s compliance probability jointly with its gearing level and the magnitude of its Ebitda coverage. However, before testing for variables that might directly affect the compliance degree of a firm, the regression model controls for financial and corporate governance variables that are deemed to influence firm j s disclosure quality. The former includes the logarithm of total sales (Size), the price to book ratio (Price/Book), the return on assets (ROA), and the interest coverage ratio (IntCov). The latter are represented by board size (BRD_Size), the percentage of independent directors (%IND), the separation between the position of chairman and chief executive officer (Dual), and the percentage of ownership concentration (%Own). The relation between the dependent variable and Size should be positive, while we expect a negative sign between Compliance and Price/Book, ROA and IntCov. Indeed, the probability that firm complies with the CO.N.SO.B. requirement should increase whenever the monitoring activity of the market participants (shareholders and creditors) is stronger. At the same time, we assume that the compliance degree is lower when firm s governance system is weak. For this reason, Compliance should be negatively correlated to Board_Size and Dual, and positively correlated to %IND (Dechow et al., 1996; Peasnell et al., 2000). The already demonstrated non-monotonic 10

11 relationship between %Own and firm s corporate governance strength does not allow a reasonable prediction about a possible correlation between Compliance and %Own (Mork et al., 1988). To conclude, the two dummy variables Industry and Year control for industry and year fixed effects. Table 5 presents a list and a brief description of the analyzed variables ( 8 ). (INSERT TABLE 5) Before running the regression model, we isolate the outlying observations by means of the three-sigma (standard deviation) rule (Barnett, Lewis, 1994): where: standard deviation of variable x Consequently, the number of observations decreases to 159, and Table 6 summarizes their descriptive statistics after excluding the outliers. (INSERT TABLE 6) Moreover, the multicollinearity is also checked by producing a univariate correlation matrix. This analysis shows that all the correlation values are below the critical limit of 0.80 and suggests that a multicollinearity problem between independent variables is not a serious concern (Hair et al., 1995). (INSERT TABLE 7) Finally, because the sample is clustered, i.e., it contains repeated observations from the same firms, a clustered-robust standard errors is ( 8 ) See also FIGURE 1 for an examination about the expected relation between the regressors and the dependent variable. 11

12 developed in order to mitigate the heteroskedasticity and autocorrelation problems (Wooldridge, 2001). Table n. 8 reports the empirical results of the clustered-robust logistic regression analysis developed on 159 observations. (INSERT TABLE 8) The pseudo R-square is equal to 50.8% and indicates that a great part of the variation in the dependent variable is explained by variation in explanatory variables. The Hosmer & Lemeshow test also allows accepting the hypothesis that the model fits well (p-value > 0.1) (Hosmer, Lemeshow, 1980; 2000). In actual fact, as expected, the dependent variable shows a positive and significant relation with Size (p-value < 0.05), %IND (p-value < 0.05) and %Own (p-value < 0.01). The compliance probability is also negatively and significantly related with the control variable IntCov (p-value < 0.01). Moreover, by analyzing the relationship between the compliance degree and the predictor variables a significant correlation between the choice to deliver a full Net Debt disclosure and the magnitude of some long-term solvency ratios emerges. In particular, the dependent variable is negatively correlated with CostOfDebt and Leverage (p-value < 0.01), while a positive relation has been detected between the Compliance variable and the Ebitda Coverage. The existence of debt covenants also seems to affect the compliance with the CO.N.SO.B. net debt disclosure requirement. Indeed, the dependent variable is positively and significantly correlated to the dummy variable Covenant (p-value <0.05) and to the interaction variable Cov*Lev (p-value < 0.01). Finally, our examination also highlights a negative and significant relationship between Compliance and the interaction variable Ebitda*Cov (p-value <0.05). The results of the regression analysis partially shows the existence of opportunistic reasons driving the quality of Net Debt disclosure. In fact, the compliance degree with the net indebtedness CO.N.SO.B. rule decreases whenever the credit risk rating of the Italian listed companies deteriorates. Moreover, our examination stresses the effectiveness of lenders monitoring activities as the existence of debt covenants increases the probability of the compliance degree, particularly when the gearing and the Ebitda Coverage ratios get worse. 12

13 4. Concluding Remarks Net Debt represents an important performance indicator. In fact, a deep analysis about the amount and the composition of such a financial measure allows financial statements users to assess the magnitude of firms leverage and their ability to service the outstanding borrowings. Notwithstanding the fundamental role played by this financial figure, the boundaries of the Net Debt financial item have not been well designed yet, and scholars and standard setters have proposed different interpretations. In such a scenario, in 2006 the CO.N.SO.B. has issued a new regulation pursuing to enhance the Net Debt disclosure quality and to increase financial statements comparability and understandability. The descriptive analysis developed in this paper stresses an extremely low compliance degree with the CO.N.SO.B. requirements. Indeed, after three years from its issue, only the 25% of the examined firms comply with the Italian Stock Exchange rule. At the same time, the multivariate analysis shows the existence of an opportunistic behavior driving Net Debt disclosure and the fundamental role played by lenders monitoring activity. In actual fact, the probability that firms choose to adopt CO.N.SO.B. rule is negatively correlated with the realized cost of debt (interest expenses over interest-bearing debts) and the gearing ratio (interest-bearing debts over total assets), while a positive relationship exists between the compliance degree and the magnitude of the Ebitda coverage (Ebitda margin over interest-bearing debts). Moreover, the existence of covenants increases the compliance probability, particularly when the gearing and the Ebitda coverage ratios get worse. These results highlight an opportunistic behavior by Italian listed companies and the effectiveness of the monitoring activity carried out by lenders and independent directors in mitigating it. However, they also stress the low compliance degree with the CO.N.SO.B. requirements, suggesting to the Italian Stock Exchange Commission the implementation of stricter control mechanisms. 13

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17 Table n. 1 CESR/CO.N.SO.B Net Debt Disclosure Scheme According to the CESR s Recommendation, issuers should be provide disclosure of Net Indebtedness in the short term and in the medium-long term. Disclosure of indirect and contingent indebtedness shall also be provided in a separate paragraph. Issuers should indicate the amounts and analyze the nature of Indirect Indebtedness and Contingent Indebtedness. 17

18 Table n. 2 IASB/FASB Net Indebtedness Information According to IASB/FASB Staff Draft, an entity would be required to analyze the changes in the balances of line items that normally constitute net debt (all items in the debt category, any short-term investments, and finance leases). However, that information would not need to be presented together in the notes as it is not possible to have a common definition of net debt. *This entity did not report any finance leases. 18

19 Table n. 3 List of the Selected Firms Company s Name Market Segments Company s Name Market Segments 1 Aem-A2A Blue Chip 31 Finmeccanica Blue Chip 2 Acea Blue Chip 32 Gabetti Standard 1 3 Acotel Group Star 33 Gefran Star 4 Acsm-Agan Standard 1 34 Gruppo Ceramiche Ricchetti Standard 1 5 Actelios Star 35 Indesit Company Blue Chip 6 Aedes Standard 1 36 Irce Star 7 Aeroporto di Firenze Standard 1 37 Isagro Star 8 Alerion Industries Standard 1 38 Luxottica Group Blue Chip 9 Amplifon Star 39 Mediaset Blue Chip 10 Arena Standard 1 40 Mondadori Editore Blue Chip 11 Atlantia Blue Chip 41 Parmalat Blue Chip 12 Basicnet Standard 1 42 Permasteelisa Standard 1 13 Bastogi Standard 1 43 Pirelli Real Estate Blue Chip 14 Beghelli Standard 1 44 Premuda Standard 1 15 Biesse Star 45 Ratti Standard 1 16 Brembo Star 46 Reno De Medici Star 17 Buongiorno Star 47 Reply Star 18 Caltagirone Standard 1 48 Retelit Standard 1 19 Caltagirone Editore Standard 1 49 Sias Blue Chip 20 Cdc Standard 1 50 Snai Standard 1 21 Cia Standard 2 51 Snam Rete Gas Blue Chip 22 Dada Star 52 Snia Ordinary Standard 1 23 Davide Campari Blue Chip 53 Sol Standard 1 24 El-En Star 54 Tas Standard 1 25 Enel Blue Chip 55 Telecom Italia Media Standard 1 26 Engineering II Star 56 Terna Blue Chip 27 Eni Blue Chip 57 Tod s Blue Chip 28 Esprinet Star 58 UniLand Star 29 Fastweb Blue Chip 59 Vianini Lavori Standard 1 30 Fiat Blue Chip 60 Zucchi Standard 1 19

20 Table n. 4 CO.N.SO.B. Requirement Compliance Degree Company s Name Year 2005 Year 2006 Year 2008 Documents Comp. Documents Comp. Documents Comp. 1 Aem- A2A Notes No Notes No 2 Acea M sd&a No M sd&a No Notes + M sd&a No 3 Acotel Group M sd&a No Notes No Notes No 4 Acsm- Agan Notes Yes Notes Yes 5 Actelios Notes No Notes No 6 Aedes M sd&a No M sd&a No M sd&a No 7 Aeroporto di Firenze M sd&a No Notes + M sd&a Yes Notes + M sd&a Yes 8 Alerion Industries M sd&a No Notes + M sd&a No Notes + M sd&a No 9 Amplifon M sd&a No Notes No Notes No 10 Arena Notes + M sd&a No Notes + M sd&a Yes Notes No 11 Atlantia M sd&a No Notes + M sd&a No Notes + M sd&a No 12 Basicnet M sd&a No Notes + M sd&a No Notes + M sd&a No 13 Bastogi M sd&a No Notes Yes Notes Yes 14 Beghelli M sd&a No Notes + M sd&a No Notes + M sd&a No 15 Biesse M sd&a No Notes + M sd&a No Notes + M sd&a No 16 Brembo Notes No Notes Yes Notes Yes 17 Buongiorno M sd&a No M sd&a No M sd&a No 18 Caltagirone M sd&a No Notes + M sd&a No Notes + M sd&a Yes 19 Caltagirone Editore M sd&a No Notes + M sd&a No Notes + M sd&a Yes 20 Cdc Notes + M sd&a No Notes + M sd&a No Notes + M sd&a No 21 Cia M sd&a No M sd&a No 22 Dada M sd&a No M sd&a No M sd&a No 23 Davide Campari M sd&a No Notes + M sd&a No Notes + M sd&a No 24 El- En M sd&a No Notes + M sd&a No Notes + M sd&a No 25 Enel M sd&a No Notes + M sd&a No Notes + M sd&a No 26 Engineering II Notes No Notes + M sd&a Yes 27 Eni Notes + M sd&a No Notes + M sd&a No Notes + M sd&a No 28 Esprinet M sd&a No Notes No Notes + M sd&a Yes 29 Fastweb Notes No Notes No Notes No 30 Fiat M sd&a No Notes No Notes No 31 Finmeccanica M sd&a No Notes + M sd&a Yes Notes + M sd&a Yes 32 Gabetti Notes No 33 Gefran M sd&a No Notes No Notes No 34 Ceramiche Ricchetti Notes No 35 Indesit Company Notes No Notes No Notes No 36 Irce Notes No Notes No Notes No 37 Isagro M sd&a No Notes No Notes No 38 Luxottica Group Notes Yes 39 Mediaset Notes No Notes Yes Notes Yes 40 Mondadori Editore M sd&a No Notes + M sd&a No Notes + M sd&a No 41 Parmalat M sd&a No Notes + M sd&a Yes Notes + M sd&a Yes 42 Permasteelisa Notes No Notes No 43 Pirelli Real Estate Notes No Notes No Notes + M sd&a No 44 Premuda Notes + M sd&a No Notes + M sd&a No Notes + M sd&a No 45 Ratti M sd&a No Notes + M sd&a Yes Notes + M sd&a Yes 46 Reno De Medici Notes + M sd&a No Notes + M sd&a No Notes + M sd&a No 47 Reply Notes + M sd&a No Notes No Notes + M sd&a No 48 Retelit M sd&a No Notes Yes M sd&a Yes 49 Sias M sd&a No M sd&a Yes M sd&a Yes 50 Snai NI - Rs No Notes + M sd&a No 51 Snam Rete Gas M sd&a No NI - RsG No Notes No 52 Snia Ordinary M sd&a No Notes No Notes No 53 Sol Notes No Notes No Notes No 54 Tas Notes No Notes + M sd&a No Notes + M sd&a No 55 Tel. Italia Media M sd&a No Notes + M sd&a No Notes + M sd&a No 56 Terna M sd&a No Notes + M sd&a No Notes + M sd&a No 57 Tod s M sd&a No M sd&a No 58 UniLand Notes No Notes + M sd&a No 59 Vianini Lavori M sd&a No Notes + M sd&a No Notes + M sd&a Yes 60 Zucchi Notes No Notes No 20

21 Table n. 5 Variables Definition 21

22 Table n. 6 Descriptive Statistics 22