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

Posted by Blerita Korca - Oct 22, 2021

In the European Union countries, the non-financial disclosure (NFD) of large entities is mandated by law. Specifically, the Directive 2014/95/EU (known as the NFRD) requires large firms to report information covering aspects such as environmental, social, and employee-related matters, respect for human rights, and anti-corruption and bribery concerns. In addition to requiring companies to report information on certain aspects, the NFRD aimed at enhancing disclosure quality. Did this regulation serve its purpose? Mandatory disclosure is assumed to also have financial effects for companies. Is it the case looking at the Italian context?

In our article "Non-Financial Disclosure and Corporate Financial Performance Under Directive 2014/95/EU: Evidence from Italian Listed Companies" published in Accounting in Europe (, we (with co-authors Marisa Agostini and Ericka Costa) explore the following three research questions (RQs):

RQ1: How does the quantity and quality of NFD develop in two reporting periods (voluntary and mandatory)?
RQ2: Is the quantity and quality of NFD by Italian listed companies associated with the CFP?
RQ3: Is the quantity and quality of mandatory NFD following Directive 2014/95/EU by Italian listed companies associated with the CFP?

By conducting a content analysis and running several regressions, the following results have emerged. After the NFRD, the volume of information has increased but not the quality. However, there has been noted an increase of forward-looking information after the regulation. In terms of NFD association with financial performance, our results suggest that higher quality information is positively correlated with profitability. However, the same results do not hold when looking at the mandatory NFD association with financial performance. Non-financial information disclosed mandatorily is not significantly correlated with financial performance.

These results suggest that formal legislation alone may not be sufficient to create a norm, and it does not imply sudden and radical changes in disclosure practices. While the quantity of information has increased following a legitimising effect, the same did not occur in terms of information quality. In addition, the inability of the NFRD to foster higher-quality disclosure is highlighted in the underlying relationship with the financial performance. The quality of mandatory NFD is not correlated with the financial performance thus failing to support the claims that it will enhance companies' economic performance.


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