Non-Financial Disclosure and Corporate Financial Performance Under Directive 2014/95/EU: Evidence from Italian Listed Companies

Abstract

This paper investigates the impact of Directive 2014/95/EU on both the quantity and quality of non-financial disclosure (NFD) and its relationship with corporate financial performance (CFP) in 20 Italian listed companies. The current study considers both the annual reports (AR) and social and environmental reports (SER) released two years prior (2015–2016) and two years after (2017–2018) the Directive’s application. A manual content analysis was conducted and OLS regression analyses were carried out to evaluate the relationship between NFD and CFP, measured by ROA, ROE and Tobin’s Q. The findings show that the Directive affected the quantity of NFD, but not the quality, and that a transfer of information occurred from the different reporting mediums considered. Overall, NFD quality is significant and positively associated with CFP when measured by ROA and ROE, however, the mandatory NFD quality following the Directive does not show a significant relationship with CFP.

Keywords:

• Directive 2014/95/EU
• non-financial disclosure
• corporate financial performance
• listed companies
• content analysis

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 As emphasized in the second paragraph, the Italian Decree requires the preparation of non-financial statements for large PIEs in each financial year beginning in 2017, but such statements are characterised by wide flexibility both in the content and in the structure. Indeed, they can constitute either a specific section of the management reports or a separate report. In both cases, the non-financial statement must be labelled as ‘Non-financial statement’ (Gazzola et al., 2020). For this reason, 40 management reports have been examined in the two years before the Italian Decree (i.e., 20 in 2015 and 20 in 2016), and 33 management reports in the two years after the Italian Decree (i.e., 16 in 2017, 17 in 2018), plus 7 separated non-financial statements, for a total number of 40 AR also in 2017 and 2018.

 

Additional information

Funding

The author(s) reported there is no funding associated with the work featured in this article.