Capital Choices: The Impact of Super ACE on Financing Decisions in Italian Companies

This study examines the impact of the Super ACE (Allowance for Corporate Equity) policy on the financial structure of Italian firms, particularly focusing on addressing the issue of undercapitalization. Italian companies, especially small and medium-sized enterprises (SMEs), often face challenges in securing enough capital for sustainable growth, which has led to an over-reliance on debt financing. The introduction of the Super ACE policy aimed to incentivize businesses to increase their equity base by offering significant tax benefits, thus reducing dependence on debt. Through a mix of theoretical insights and practical data, the study explores how the Super ACE policy has influenced firms' decisions regarding capital structure, emphasizing the shift from debt to equity financing. The research findings reveal that companies benefiting from Super ACE experienced increased long-term investments and improved credit ratings. These effects highlight the policy’s positive role in fostering financial stability and supporting the growth of Italian firms. The study also reviews the broader challenges faced by Italian SMEs, such as the regulatory framework and economic environment, that contribute to undercapitalization. It recommends extending the Super ACE policy and increasing educational resources for businesses to help them better understand the benefits of equity financing. Additionally, it suggests that SMEs adopt a balanced approach between debt and equity to improve financial health and resilience. The findings contribute to the existing literature on corporate finance by shedding light on the effectiveness of government policies in shaping firms' financial behavior and providing practical recommendations for addressing undercapitalization in Italy.