Corporate governance mechanisms and non-financial disclosure quality: Evidence from sustainability committee, external CSR assurance, and stakeholder engagement

Abstract

This paper investigates the relationship between corporate governance mechanisms and the quality of non-financial disclosures. Specifically, we examine whether the presence of a sustainability board committee, third-party assurance, and stakeholder engagement practices are associated with disclosure quality, measured by abnormal non-financial disclosures. Using a hand-collected dataset of 1089 annual reports from Swedish listed companies between 2013 and 2021, our study reveals that the existence of sustainability committees and stakeholder engagement practices tends to reduce abnormal non-financial disclosures, while third-party assurance appears insignificant. In additional analyses, we examine how these governance mechanisms interact when combined and find that the main results persist even after accounting for interaction effects, though the effects of interactions themselves are inconsistent. Furthermore, we assess the relationship before and after the mandatory non-financial reporting regulation under EU Directive 2014/95/EU. Our findings suggest that the regulation substitutes the role of sustainability committees but complements stakeholder engagement. Overall, our study indicates that these corporate governance mechanisms can serve as effective alternative tools for enhancing the quality of non-financial disclosures.