The European Union Non-Financial Reporting Directive: Evidence on Regulatory Parameters and Firm-Value Consequences

This paper investigates the economic consequences of the European Union’s directive on non-financial disclosure (NFRD). We analyze data from a sample of 698 European firms and a matched control group of US firms to investigate two questions. First, we examine what effects the implementation of the NFRD has on a firm’s CSR disclosure level. Based on a sample of 5,584 firm-year observations, our results show that the NFRD has a positive effect on the level of CSR disclosure in the group of treated firms relative to the control group. This effect is more pronounced in countries where the scope of the mandate is further specified and sanctions in case of non-compliance are stronger. The effect is weaker in countries where national regulations require integrated reporting. Second, we examine how the relationship between CSR disclosure and firm value in the treatment group developed since CSR disclosure became mandatory, i.e., in 2017 and 2018. Our results show that the relationship between the voluntary components of CSR disclosure and firm value is positive. However, we found no evidence that the mandatory component of CSR disclosure has a significant effect on firm value.