Corporate Reporting Practices in Poland and Romania – An Ex-ante Study to the New Non-financial Reporting European Directive

ABSTRACT

The European Directive 2014/95/EU as regards disclosure of non-financial and diversity information by certain large undertakings and groups is applicable by European Union-based entities starting with the financial year commencing on 1 January 2017. Central and Eastern European (CEE) countries are reported to face difficulties when implementing new European or global accounting regulations and models. We investigate the quality of non-financial disclosures in Poland and Romania, the biggest CEE countries, prior to the European Directive’s adoption and explain the diffusion of this type of reporting through the lens of the institutional pressures. We find that prior regulation, local institutional characteristics, ownership, industry and auditors have an impact on the quality of disclosures. Poland experienced a higher extent of voluntary reporting, but Romania faced prior regulatory demands for non-financial reporting (NFR). We find that the overall disclosure score is higher for Romania, which provides support for the importance of regulations to strengthen the spread and quality of NFR. The research findings are relevant to practice and policy. This ex-ante evaluation of reporting practices and of their determinants is useful to understand how change occurs in practice and how companies react to regulatory and other institutional demands.

Keywords:

• Directive 2014/95/EU
• non-financial reporting
• content analysis
• disclosure index
• corporate social responsibility
• Poland
• Romania

JEL Code:

• M41

Acknowledgements

The authors thank the Editor, Professor Paul André, the Editors of this Special Issue: Professor Cătălin Nicolae Albu, Professor Nadia Albu and Professor Andrei Filip, for comments that greatly improved the manuscript. The authors are also grateful to anonymous reviewers for their suggestions and to Professor Doris Merkl-Davies for discussing the paper during the Accounting in Europe special section of the Accounting and Management Information Systems Conference, June 2016.

Disclosure statement

No potential conflict of interest was reported by the authors.

ORCID

Mădălina Dumitru http://orcid.org/0000-0001-9159-6302

Joanna Krasodomska http://orcid.org/0000-0001-8423-678X

Notes

1 In order to be considered large, an undertaking must observe additional criteria related to either total assets (over 20 million EUR) or turnover (over 40 million EUR).

2 The CNVM Regulation No. 1/2006 is currently enforced by the Romanian Financial Supervisory Authority – ASF, in charge with specific regulations regarding the financial market which also apply to listed companies.

3 WIG30 Index is a price index and is calculated based on the value of portfolio with shares in 30 major and most liquid companies in the WSE Main List.

4 BET Plus Index tracks the price changes of Romanian companies listed on BVB’s regulated market that meet the minimum selection criteria of liquidity and free float. It includes 34 companies.

5 The environmentally sensitive domains were defined using the same criteria as Barbu, Dumontier, Feleagă, and Feleagă (2014) and are: metal mining, coal and lignite mining, oil exploration, paper, chemical and allied products, petroleum refining, glass, metals and air transportation.

6 We study a number of 20 items, which covers information about the business model, policies and risks related to CSR issues (four items), environmental matters (seven items), social and employee-related matters (eight items) and ethical matters (one item). Two items mentioned in the ED are excluded from the list, based on the preliminary results of the data collection process. ‘Outcome of policies’ is excluded because the related information is disclosed in other items included in the scoring system. ‘Social dialogue’ is excluded because it is difficult to distinguish from two other items, namely: ‘respect for the right of workers to be informed and consulted’ and ‘the dialogue with local communities’.

7 The relevant mandatory requirements from the CNVM regulation are: a general description of the reporting entity, and of its mergers and acquisitions, using financial indicators; the technical development stage (products, markets, distribution methods, future developments); supply chain (suppliers, prices, inventories); sales (medium and long-term perspectives, competition, important clients); financial risks and risk management.

8 The relevant mandatory requirements from the CNVM regulation are that environmental impacts must be evaluated and presented, as well as information about any existing or expected litigations associated with the environmental protection legislation.

9 Impacts on health and safety. Most companies also refer to the environmental protection legislation in force, lack of environmental accidents and negative impacts on the environment, and the integrated systems for the management of environmental issues, quality, health and safety.

10 Only one company was assigned almost a ‘perfect’ I₂ score (95.24% for PKN ORLEN S.A.)

11 Disclosures on this issue referred among others to the number of trade union organizations, disputes with unions, the description of relations with trade unions and agreement signed between management board and trade union organizations.

12 The relevant reporting requirements from the CNVM regulation: the number of employees and their qualifications, the degree of syndication/trade union membership, and a description of the relationships between the management and employees, including conflicts. The indicator found in the reports for the degree of syndication is: number or percent of trade union members in total number of employees.