Employee representatives, employee related disclosures, and the implementation of the Non-Financial Reporting Directive

We explore how employee representatives on corporate boards influence the extent and the quality of employee related disclosures in light of the recent EU Directive (2014/95) on Non-Financial Reporting (NFR). Using a sample of Swedish firms listed at the Stockholm Stock Exchange, we examine the level and the quality of employee related information before and after the Directive, and compare firms with and without employee representatives. Our results point to higher quality disclosures on employee related matters in firms with employee representatives in general. The results on the effect of the new regulatory requirement indicate that the overall quality of disclosures increases after the regulation, but this increase is only found in firms without employee representatives. We also document that employee related disclosures are more concrete and less uncertain in firms with employee representatives, although the level of uncertainty has increased after the implementation of the Directive. These findings suggest that the regulation contributes to a better quality of employee reporting, when there is a lack of substituting governance mechanisms.