Abstract
PurposeThis paper investigates whether and how Directive 2014/95/EU affects financial performance as well as its moderation effect on the relationship between financial and non-financial performance, involving different stakeholders' perspectives.Design/methodology/approachWe adopted the panel data approach to perform random effects regression analysis on a sample of 435 European listed non-financial companies, considering a timeframe of six years. Furthermore, the moderation effect of the Directive 2014/95/EU on the relationship between financial and non-financial performance has been tested.FindingsNFD regulation negatively affects firms' operating profitability and shareholder value while produces no effects on debtholders' returns. Nevertheless, the Directive 2014/95/EU has general positive moderating effects on the relationship between non-financial and financial performance, mitigating the direct costs induced by pursuing non-financial performance.Research limitations/implicationsShifting from mimetic to coercive isomorphism caused a strengthening of the complementarity between financial and non-financial performance dimensions, extending the concept of performance itself. The analysis carried out is limited to a short-term timeframe and on non-financial companies subject to the Directive 2014/95/EU.Practical implicationsThe paper highlights trade-offs between the costs induced by non-financial activities and the benefits of being compliant with the non-financial disclosure (NFD) regulation, supporting managers in allocating business resources.Originality/valueThis paper is among the first that investigates the impact of mandatory NFD on the relationship between non-financial and financial performance. It is also one of the earliest in finding some pieces of evidence on the direct impact of Directive 2014/95/EU on EU companies' financial performance.
Highlights
Over the years, sustainability is losing its philanthropic nature and it is increasingly becoming a crucial aspect of business management
We developed the empirical part of our study examining if and how distinct financial corporate performance dimensions relevant for specific stakeholder categories vary due to: (1) the corporate attitude in using both economic and ESG factors in management and reporting activities; (2) different non-financial disclosed performance related to micro sustainability dimensions (i.e. Resources Use, GHG Emissions, Workforce, Human Rights, Community, Products Responsibility); (3) possible post-Directive 2014/95/EU transposition effects
We found that the EU regulation on Non-financial disclosure (NFD) positively moderates the relationship between non-financial and financial performance
Summary
Sustainability is losing its philanthropic nature and it is increasingly becoming a crucial aspect of business management. To what happens for financial information, non-financial information must be reported and communicated to stakeholders. Non-financial disclosure (NFD) is becoming a common practice, recognized at the institutional level since it has been made mandatory in different parts of the world. In Europe, Directive 2014/95/EU made the NFD mandatory for large and public interest companies, this represented a turning point for EU companies that had to reshape. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode
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