Preferences for ethical intermediaries and sustainable investment decisions in micro-firms: The role of financial literacy and digital financial capability

David Aristei · Manuela Gallo · Valeria Vannoni

22 citations0/0 files storedResearch in International Business and Finance

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Financial Literacy and Behavior FinTech, Crowdfunding, Digital Finance Sustainable Finance and Green Bonds

Abstract

This study analyses the effects of financial literacy and digital financial capabilities in shaping business owners’ preferences for ethical intermediaries and sustainable investment decisions in Italy. Exploiting new microdata from the Bank of Italy’s “Financial literacy and digitalization of small businesses in Italy”, we use binary choice models, extended to account for potential endogeneity issues, to investigate the causal effect of financial competencies and digital activities related to financial products and services on firms’ attitudes towards sustainable finance. Empirical results suggest that more financially literate business owners have higher preferences for financial intermediaries with a strong ethical stance, are more likely to make investments inspired by environmental and social criteria and have a higher awareness of sustainable financial products. Digital financial competencies also play a significant role in enhancing preferences for ethical intermediaries and sustainable investment decisions. Disaggregating financial literacy into its three components, we find that high financial knowledge, sound financial behaviour, and strong attitudes towards financial planning are associated with a greater preference for responsible intermediaries and a higher likelihood of making responsible investment choices. Finally, we assess whether the effect of financial literacy is mediated by its impact on digital financial capabilities. The evidence obtained suggests that the beneficial effect of financial literacy is mostly direct, while the indirect effect operating through higher digital financial abilities, despite being statistically significant, affects firms’ preferences for ethical intermediaries and sustainable investment decisions only to a lower extent.

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