Corporate reporting metamorphosis: empirical findings from state-owned enterprises

Abstract

Nicolo and colleagues examine the level of compliance and the factors determining such compliance in the context of integrated reporting by state-owned enterprises (SOEs) in Europe. The study uses content analysis and an ordinary least square regression of integrated reports issued in 2016 by 34 SOEs representing 12 European countries. The content analysis was undertaken by developing a binary non-weighted disclosure index. The index was developed by assigning a score of one for every item on the Integrated Reporting Framework (IRF) disclosed by each firm under study, whereas a score of zero for the absence. The IRF is not mandatory but it is one of the reporting frameworks suggested by Directive 2014/95/EU which imposes the SOEs under study to report their non-financial issues. Despite being voluntary, the authors use the term ‘compliance’ with the framework to constitute the disclosed items on the IRF. The content analysis reveals that the firms under study fairly complied with the IRF requirements. Meanwhile, the regression analysis shows that firm size and sensitive industries were positively associated with the level of compliance, but the length of the report was negatively associated with the compliance level. A closer look at the compliance measurement suggests that the more items on the IRF were disclosed in the report, the higher the degree of compliance. However, this compliance potentially reflects ‘box-ticking’ behaviour, seeking legitimacy by symbolically meeting the IRF requirements without substantively showing social and environmental improvements in the area where the firms operated. Such symbolic behaviour may potentially also exist in mandatory settings under the Directive 2014/95/EU, where the ‘normativity of the law’ determines how influential the mandatory reporting requirements are, and therefore how likely they are to be complied with. In this regard, compliance with the mandatory reporting requirements of Directive 2014/95/EU is intimately entwined with the perception of reporters as to whether the requirements are binding. The normativity of the law in this context implies that SOEs may decouple the disclosure of items on the IRF from the actual practice when the mandatory reporting requirements of the Directive 2014/95/EU are perceived contradictive with their organisational objectives. Future research can explore reporters’ perceptions of the normativity of the mandatory reporting requirements through interviews and then link these perceptions to a longitudinal study of disclosure level in integrated reports. Such a study, rather than a cross-sectional one, can facilitate the examination of corporate reporting ‘metamorphosis’ over time. The interviews, along with the longitudinal study, can also explore whether disclosures in the integrated reports under study capture the actual practice – confirming whether this is symbolic or substantive compliance.