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

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.