Disclosure Of Non-financial Information Research Articles

Are ESG scores affected by the quality of non-financial disclosures?

ESG scores are an important indicator of a company's performance in the areas of environmental, social responsibility and corporate governance, and non-financial information as the basis for a company's ESG score has received increasing attention in recent years. Based on the data of A-share listed companies in Shanghai and Shenzhen from 2007 to 2022, the study finds that disclosing non-financial information that is more similar to that of other companies in the same industry reduces a company's ESG score, while the higher the readability and forward-looking content of the disclosure, the higher the ESG score. Mechanism tests suggest that the act of digital transformation causes firms to disclose non-financial information that affects ESG scores. Other analyses show that higher similarity of non-financial information in non-high-tech firms has a greater impact on ESG scores, while firms with different firm sizes and internal control quality respond differently to ESG scores. This study reveals the characteristics of non-financial information disclosure in detail, enriches the related research on the influencing factors of ESG scores, provides theoretical support and practical value for the principles and directions of non-financial information disclosure of listed companies, and provides ideas and directions for the vigorous development and improvement of ESG scores.

Environmental, social, governance and gender diversity under the adoption of European Di-rective 2014/95/EU

Research Question: Does Gender Diversity positively or negatively affect the non-financial information on ESG? Motivation: This research explores the connection between ESG and the synthesis of the Board of Directors. More explicitly, we explore if the board's Gender Diversity improves non-financial information on ESG. Also, the effect of board gender diversity on ESG is under investigation as the findings in the current literature about the synthesis of board gender diversity are mixed. Considering this gap, this research tries to understand if Gender Diversity positively or negatively affects the non-financial information on ESG. Idea: This research article aims to study the relationship between gender diversity on board and European companies' environmental, social, and governance (ESG) ratings. It also examines the potential impact of European Directive 2014/95/EU, which re-quires disclosure of non-financial information, on this relationship. Data: The investigation used the dataset of 5,380 observations from 20 European countries from 2013 to 2022. Tools: The association between the ESG ratings and control variables was examined using regression analysis. Findings: The investigation results confirm a statistically significant impact between gender diversity and ESG performance ratings. The findings confirm conclusions drawn in other research studies. The adoption and enforcement of EU Directive 2014/95/EU had a remarkable and positive impact on European firms' ESG policies, as shown by statistical significance in several regression models. Gender diversity on company boards positively impacted all ESG models except the Governance Pillar Score. The investigation shows the importance of board synthesis, gender diversity, and additional variables concerning ESG reporting practices. Contribution: This research explores the connection between ESG and the synthesis of the Board of Directors. More explicitly, we explore if the board's Gender Diversity improves non-financial information on ESG. Also, the effect of board gender diversity on ESG is under investigation as the findings in the current literature about the synthe-sis of board gender diversity are mixed. Considering this gap, this research tries to understand if Gender Diversity positively or negatively affects the non-financial in-formation on ESG.

Regulating Sustainability Reporting in Europe: De Jure Harmonisation or De Facto Standardisation?

ABSTRACT The paper aims to contribute to the debate about sustainability reporting through an evidence-based analysis of the contribution of the Global Reporting Initiative (GRI) to the standardisation of the non-financial disclosures prepared by the Italian public interest entities (PIEs). For the purpose of this study, we considered a sample of Italian PIEs affected by the effects of the Directive 2014/95/EU during the period 2017-2020. Following previous studies about financial accounting harmonisation, the analysis was built using the Herfindahl index (H-Index) and Comparability index (C-Index). The analysis reveals that the GRI standards contributed to achieving a higher degree of harmonisation. Furthermore, the analysis underlines an isomorphic approach related to the disclosure of non-financial information on a mandatory basis. Despite common legal requirements, we found virtuous companies voluntarily adopted a more sophisticated reporting approach to signal their orientation to sustainable and ethical paradigms.

ESG disclosure and investment-financing maturity mismatch: Evidence from China

Although the maturity matching theory argues that easing information asymmetry risk contributes to reducing mismatches, the role of non-financial information disclosure in this process remains unclear. This paper investigates the relationship between environmental, social, and governance (ESG) disclosure and the phenomenon of companies using short-term loans for long-term investments. Using data from companies listed in the Chinese Stock Exchanges, we demonstrate that: (1) ESG disclosure effectively reduces the incidence of maturity mismatches, mainly due to improved environmental performance and governance capacity rather than increased social responsibility; (2) There is significant heterogeneity in the effect of ESG disclosure on investment-financing maturity mismatches, which is associated with differences in companies’ ownership structures, innovation capabilities, and financing accessibility; (3) Improvement in company financing capacity, including higher equity liquidity, more optimized debt structure, and lower debt cost, explains the source of ESG’s contributions; (4) Further analysis shows that while the reduction in maturity mismatch risk arising from ESG disclosure improves companies’ productivity and competitiveness, its influence on cross-regional investment and investment efficiency is limited.

Do customers’ financial restatements affect how auditors respond to their suppliers? Evidence from China

PurposeThe purpose of this study is to explore the economic impact of financial restatements by major customers on the audit opinion of their suppliers, showing that non-financial information disclosure potentially helps auditors make better assessments.Design/methodology/approachUsing a sample of China’s listed firms from 2007 to 2021, the authors aim to find the relationship between customers’ financial restatements and their suppliers’ audit opinions. Heckman selection model, placebo tests and other robustness checks are used as well.FindingsThe findings reveal that customers’ financial restatements have a significant effect on the likelihood of suppliers receiving modified audit opinions. This relationship is pronounced when suppliers face a higher level of financial constraints, exhibit poorer accounting conservatism or receive more negative media coverage. Additionally, this effect occurs through increased business risk and information risk, which heightens auditors’ perceived audit risk. Moreover, the study highlights the influence of switching costs, auditor expertise and restatement severity on this relationship.Practical implicationsRisks originating from customers can spread along the supply chain, emphasizing the necessity for auditors to give heightened attention to both the audited firms and their customer information. Moreover, regulators should carefully consider the important impact of customer information disclosures to maximize the protection of the interests of external information users.Originality/valueThis study not only confirms the crucial role of customer information disclosures in annual reports for stakeholders and auditors but also contributes to the existing literature on customer–supplier relationships.

NON-FINANCIAL INFORMATION DISCLOSURES AND FIRM PERFORMANCE OF LISTED NON-FINANCIAL SERVICES FIRMS IN NIGERIA

This study explored the impact of non-financial information disclosures on the performance of non-financial services firms listed in Nigeria. It utilized an ex-post facto research design on panel data extracted from annual financial reports of selected firms spanning from 2013 to 2022. The methodology involved Generalized Linear Models (GLS) regression analysis, performed using E-Views V.9.0 software. Diagnostic tests were conducted to ensure compliance with panel assumptions, and hypotheses were evaluated based on the specific model formulated. The study utilized two models with dependent variables being accounting-based (Return on Equity - ROE) and market-based (Net Assets per Share - NAPS) to measure various independent variables (environmental, social, corporate governance, and forward looking disclosures). With p-values of 0.000 and 0.0433 for the models ROE and NAPS, respectively, the analysis's findings showed that environmental disclosures significantly and favourably affect the performance of listed non-financial companies in Nigeria. Social disclosures had negative p-values in both NAPS and ROE (0.0113 and 0.1310, respectively). However, corporate governance was statistically significant in ROE but negligible in NAPS. Additionally, with p-values of 0.0000 and 0.0230 for ROE and NAPS, respectively, the study demonstrated that forward-looking information positively and significantly impacted the performance of quoted non-financial firms in Nigeria. The study concludes that non-financial information disclosure has a mixed effect on the financial performance of quoted firms in Nigeria's non-financial services sector. It recommends regulatory standardization for forward-looking disclosures. Furthermore, investors are advised to consider future investment projections alongside financial statements to gain a comprehensive understanding of a firm's future outlook.
 Keywords: Non-financial information disclosures, Performance, Non-financial firms, Return on Equity, and Net Assets per Share.

Leverage manipulation and strategic disclosure: evidence from non-financial information in annual reports based on multimodal machine learning

ABSTRACT This study adopts multi-modal machine learning to deeply interpret corporate non-financial information and explore the influence of corporate leverage manipulation on non-financial information disclosure. It is found that enterprises will strategically disclose non-financial information when implementing leverage manipulation, that is, the emotion of non-financial information text is more positive, farther away and more difficult. Based on the motivation of leverage manipulation, when enterprises face greater pressure of ‘deleveraging’ policy and stronger financing constraints, enterprises are more inclined to disclose non-financial information strategically when implementing leverage manipulation. Further, the dual motives of leverage manipulation are explored deeply. For the samples with high ‘deleveraging’ policy pressure such as state-owned enterprises and high media attention, and the samples with strong financing constraints such as high short-term debt repayment pressure and high debt financing cost, the positive relationship between leverage manipulation and strategic disclosure of non-financial information is more significant.

Non-financial and integrated reporting as a new stage in the evolution of corporate reporting

Subject. The article addresses different types of non-financial reporting that exist in the world practice, and integrated reporting. Objectives. The aims are to determine the purpose of non-financial and integrated reporting, conduct a comparative analysis of financial and non-financial reporting, identify trends in the development of non-financial and integrated reporting in Russia and in foreign countries. Methods. The study employs general scientific methods, like classification, detailed elaboration, generalization, systematization, description, and comparison. Results. The paper identifies periods of formation of non-financial and integrated reporting practices in Russia and in foreign countries; defines functions of non-financial reporting; reveals distinctive features of non-financial and financial reporting; classifies non-financial reporting and highlights the specifics of all its types. The concepts of "non-financial reporting" and "integrated reporting" are distinguished. I analyzed the dynamics of non-financial and integrated reporting development in Russia and abroad, summarized possible options for disclosure of non-financial information about organization's activities, and considered international standards establishing the procedure for non-financial statements preparation. Conclusions. The scope of application of non-financial and integrated reporting will expand every year, as stakeholders are increasingly demanding the most comprehensive information about company activities. Non-financial and integrated reporting contribute to corporate transparency.

Роль нефинансовой отчетности в принятии экономических решений

An important aspect of making an economic decision is the disclosure of both financial and non-financial information. Non-financial reporting is the main tool for obtaining the necessary information for stakeholders. Th e purpose of this work is to study the role of non-financial reporting in economic decision-making. The main stakeholders of the information presented in non-financial reporting have been identified. Th e analysis of the impact of non-financial reporting on economic decision-making by both internal and external users is carried out.

Disclosure in corporate reporting: Classification, trends, and prospects

Subject. This article focuses on identifying trends related to the optimization of data disclosure in reporting and addressing constraints, including in relation to disclosure-sensitive information. Objectives. The article aims to identify the classification features in relation to mandatory disclosure, determine the existing trends in the optimization and restrictions of information disclosure in financial and non-financial reporting, as well as describe the prospects for solving the problems of transparency of reporting prepared under the conditions of information restriction. Methods. For the study, we used the methods of logical analysis, systematization, data grouping, comparison, and average values. Results. The article proposes classification features in relation to information to be disclosed in financial statements, identifies trends in the disclosure of non-financial information, evaluates approaches to the statutory regulation of disclosure of information in financial statements proposed in international practice, and formulates proposals regarding the prospects for disclosure of reporting information. Conclusions. The processes of improving the transparency of information in the reporting of Russian organizations are multidirectional, depending on the situation in the economic and political sphere. Some organizations need to limit the publication of both individual information and financial statements as a whole, but at the same time, the number of enterprises providing non-financial reporting in order to strengthen their positions in financial markets and attract investors gets increasing. The regulatory framework for these processes is aimed at developing optimal approaches to the application of restrictions on information disclosure and providing methodological support to ensure a balance between the interests of preparers and users.

Private Loan Disclosure Covenants and Public Management Guidance

Prior research provides little evidence about whether the information demands of private lenders affect the information environment of borrowers’ public shareholders. Using a covenant in loan contracts, lenders can require borrowers to periodically provide projected financial statements. We examine borrowers’ voluntary disclosure of prospective financial information (“management guidance”) to the public after being subject to the disclosure covenant. We find that the disclosure covenant is associated with more frequent management guidance. This relation is attributable to borrowers increasing nontraditional earnings guidance and non-earnings financial guidance. In falsification tests, we find that a covenant requiring borrowers to provide monthly historical financial information is not associated with management guidance and that the prospective financial information disclosure covenant is not associated with voluntary disclosure of nonfinancial information. Our results suggest that a firm’s contractual obligation to provide projected financial information to private lenders increases the quantity and breadth of its voluntary guidance to public shareholders.

BOARD SIZE, BOARD COMPOSITION, LEVERAGE AND ITS EFFECT ON INTELLECTUAL CAPITAL DISCLOSURE

Disclosure of non-financial information by companies is very important information, such as voluntary disclosures. The most common type of information used by investors is not actually disclosed by managers in annual reports. This causes a social gap between investors and management. It can be concluded from the research that voluntary disclosure is very important to improve the quality of annual reports and satisfy the interests of stakeholders. A management system that can work professionally, honestly and transparently can increase demand from the market and will encourage companies to provide more transparent information. The information disclosed in the financial statements is actually not able to represent the overall condition of the company in order to produce values and make decisions by investors. Therefore, in order to increase value and assist investors in making decisions, companies can disclose information voluntarily. With this obligation, it can encourage companies to disclose more information, because honesty and transparency are the basis of corporate governance, this is what is referred to as disclosure of intellectual capital (intellectual capital disclosure) The main purpose of this research is to find empirical proof about the effect of board size, board composition, and leverage on intellectual capital disclosure. The data used in this research were obtained from manufacturing companies that listed on the Indonesian Stock Exchange (IDX). 288 data were gathered from 144 companies in the year of 2020-2021. Purposive sampling method is used to collect the data and panel data regression model is used for hypothesis testing. Software EViews 9 is used for preparing and processing data. This research reached a conclusion that the number of board composition is positive and have not give a significant effect on intellectual capital disclosure. Variables of board size and leverage have a negative and dont have a significant effect on intellectual capital disclosure.

Comparative analysis of regulatory regulation of financial and non-financial corporate reporting on environmental activities of companies

The article presents a set of issues related to the formation of data on the environmental activities of enterprises, taking into account the current Russian and international regulations. A review and comparison of the practice of using environmental information to assess the performance of companies and investment attractiveness showed the need to improve methodological approaches to disclosure of financial and non-financial information in corporate reporting, as well as the development of uniform rules and regulations for reporting containing indicators of environmental and environmental activities of economic entities. A comparative analysis of the provisions of Russian and foreign standards is given and directions for improving the regulatory framework governing the procedure for the formation of environmental financial and non-financial corporate reporting are identified.

COVID-19 발생 전후 ESG 투자성과가 유동성에 미치는 영향

We investigated the impact of ESG practices on liquidity within Korea's KOSPI-listed firms during the period 2012-2022. ESG practices are known to reduce idiosyncratic risk through the disclosure of non-financial information. This suggests that a high level of ESG performance can enhance stock liquidity by reducing adverse selection costs. The levels of ESG performance were evaluated using KCGS's annual firm-level ESG ratings. Liquidity was evaluated using Amihud(Roll)’s measure. Our primary findings are as follows: We determined that ESG activities can serve as a channel to decrease illiquidity in the Korean stock market. Additionally, in the comparative analysis of the impact of ESG activities on liquidity during and before the COVID-19 pandemic, we discovered that the liquidity-increasing effect of ESG activities was particularly potent during the crisis. This indicates that unexpected shocks like COVID-19 have emphasized the demand for sustainable management, leading companies to voluntarily explore more effective ESG management strategies in response to investor demands, resulting in improved liquidity.

Non-financial Reporting

The aim of the article is to review the most important standards and legal regulations in the field of non-financial reporting and to examine the reporting methods and standards used by energy companies listed on the Warsaw Stock Exchange. The authors used desk research, analysis of source data and the formal and legal method. The research results indicate that energy sector companies in Poland, represented by companies from the WIG-energy index on the Warsaw Stock Exchange, apply very different reporting standards, and some of them do not provide information on social or environmental activities. The new provisions of the EU law on the disclosure of non-financial information will introduce the obligation for many companies to report non-financially according to uniform standards.

Особенности правового регулирования «зеленого» инвестирования в России

Introduction. The consequences of global climate change and environmental degradation have predetermined the need to create a more sustainable economy. Transforming the economy to make it more sustainable requires intensive investment, especially to ensure the transition to “green” and low-carbon technologies. Different types of “green” investments contribute to the “green” economy in various ways. Each of these functions is critical to making significant progress in the fight to reduce greenhouse gas emissions and combat climate change, and each area offers investment opportunities. Given that the public sector alone cannot cover this financial need, the solutions have been found to attract the private sector. Purpose. Various types of “green” projects are analyzed; the most effective financial instruments are recommended, as well as the mechanisms of state support. Methods. The methodological framework for the study is the methods of scientific cognition, among which the main ones are the methods of systematicity, analysis and comparative law. Results. The author has analyzed the legal regulation of the sphere of “green” finance in the world and in Russia. Conclusions. The interest in eco-friendly and sustainable financing is growing very rapidly among investors around the world. To attract more investors, there is a need to increase the level of standardization and disclosure of non-financial information published by companies and used for risk assessment. Given that climate change and environmental degradation are global challenges, the international cooperation and active involvement of investors around the world is an important task.

Method of calculating the integral indicator of transparency of Ukrainian banks

The research is devoted to the problem of financial and non-financial information disclosure by banking groups of Ukraine. Detinization of the economy is one of the highest priorities of state policy, banks, as the largest group of financial intermediaries, act as one of the tools to reduce the level of shadow transactions. However, the problem of the presence of mechanisms for identifying violations, anti-corruption measures, which in turn should have a positive effect on the level of bank transparency, is still not sufficiently covered. In this paper authors analyze the Management Report. It is a report, which contains financial and non-financial information, reveals the state and prospects of development, and characterizes the key risks accompanying the activity. Since at this stage the normative acts do not define a unified form, the problem of information disclosure is quite urgent. Taking into account the above-mentioned research problems, the authors analyzed the key structural divisions of the Report of the largest state-owned banks with private and foreign capital during 2021-2022. Using the expert method, the points of the Report that more fully disclose information, those that directly relate to the problem of shadowing, were determined economy and fight against corruption, and those that do not exist at all. As the next stage, the authors chose the Fishburne method for ranking indicators in order of their importance, which became the basis for deriving an integral indicator of transparency for each bank. The results show that there is a general tendency to increase the level of openness of financial and non-financial information of banks. In terms of forms of ownership, banks with foreign capital and state-owned banks are more transparent, which in turn helps to reduce the level of shadow transactions.

A large-scale analysis of the heterogeneity of markets' reactions to the disclosure of nonfinancial information

ABSTRACT To allocate capital to its most sustainable use, market participants need information on companies' sustainability plans and initiatives. This information is disclosed in sustainability reports, but the disclosure process is largely unregulated and voluntary. When do sustainability reports convey relevant information? To answer this question we estimate the heterogeneous effects of nonfinancial disclosure on analysts' estimates of earnings and firms' equity values. We have found that the information content of nonfinancial disclosure is larger when firms are subject to greater information asymmetry, and when nonfinancial information is integrated within a financial context. Moreover, positive responses have a long-lasting impact while negative shocks are corrected within a short window. Overall, our work suggests that market participants' interest in standalone nonfinancial information is limited, and integrated reporting increases the value of sustainability reports.

Towards a dynamic approach to materiality: A lesson from COVID-19

ABSTRACT Over the past few years, there has been an increasing demand for non-financial information as stakeholders become more aware of the need to reconsider the global economy. This has led academics and policymakers to discuss the importance of companies disclosing their non-financial information to effectively engage with citizens and stakeholders. Recently, there has been a debate about moving away from traditional accountability practices based on annual disclosure of non-financial information towards a more dynamic approach that involves continuous engagement with stakeholders. Social media has been highlighted as an effective tool to achieve this, and the COVID-19 pandemic has further emphasised the need for effective communication with stakeholders, which has led to the adoption of social media to share information. This paper aims to empirically evaluate the accountability practices of large Italian organisations during the pandemic by analysing data extracted from Twitter, providing new insights into the impacts of pandemics on stakeholder engagement practices.

Towards the Voluntary Adoption of Integrated Reporting: Drivers, Barriers, and Practices

Integrated reporting is essentially a voluntary practice worldwide. For this reason, although it is growing, its diffusion is slow. Based on the Portuguese context, where a reduced number of listed companies publish integrated reports, this study aims to explore the drivers and barriers for the voluntary adoption of integrated reporting and the reporting practices up to the production of an integrated report. To this end, an analytical framework based on the Diffusion of Innovation Theory was developed and applied to data collected from a survey and corporate reports from both “adopters” and “non-adopters”. The evidence collected suggests that the adoption of integrated reporting may be driven by the perception of a relative advantage over traditional reporting in terms of providing more relevant information to capital providers, particularly banks. The publication of an integrated report appears to be the result of a process of incremental improvements in the practice of disclosure and assurance of non-financial information, so that the previous experience with sustainability reporting is also an important driver for voluntary integrated reporting. Finally, companies may be differently prepared for transition to integrated reporting and, therefore, have different perceptions of its cost and complexity, which may act as a barrier.