Regulating non-financial reporting: evidence from European firms’ environmental, social and governance disclosures and earnings risk

Purpose Motivated by the enactment of non-financial reporting regulations by the European Parliament, this paper aims to investigate the impact of European Union (EU) directive 2014/95/EU on the quantity of environmental, social and governance (ESG) disclosures by the S&P Europe 350 index firms. This study also investigates whether the implementation of the non-financial information (NFI) reporting regulations influences the association between ESG disclosures and firms’ earnings risk. Design/methodology/approach To measure the impact of mandatory regulations on the quantity of ESG disclosures, this study estimates the average treatment effects using a propensity weighted sample. Then this study uses the difference-in-differences method to estimate the differences in the association between ESG disclosures and earning risk before and after implementation of the EU directive. Findings The results show a significant positive impact of the EU directive on the quantity of ESG disclosures for the sample European public-interest entities, which indicates that the mandatory NFI reporting requirements could boost the availability of increasingly demanded ESG related information. The enhanced association between the ESG disclosures and firms’ earnings risk during the post-directive period reveals that mandating NFI reporting also increases the quality of ESG disclosures. Originality/value Using the legitimacy and decision-usefulness theories, this study provides novel evidence concerning the impact of the EU directive on the quantity and quality of ESG disclosures.

Robust Estimation of Wage Dispersion with Censored Data: An Application to Occupational Earnings Risk and Risk Attitudes

We present a semiparametric method to estimate group-level dispersion, which is particularly effective in the presence of censored data. We apply this procedure to obtain measures of occupation-specific wage dispersion using top-coded administrative wage data from the German IAB Employment Sample. We then relate these robust measures of earnings risk to the risk attitudes of individuals working in these occupations. We find that willingness to take risk is positively correlated with the wage dispersion of an individual’s occupation.

What happened to financially sustainable firms in the Corona crisis?

Purpose: Financial sustainability is underrepresented in both research on and the practice of sustainability management and reporting. In this article, we examine empirically how financially sustainable firms performed in the Corona crisis.Methods: We measure financial sustainability by four conditions: (1) firm growth, (2) the company’s ability to survive, (3) an acceptable overall level of earnings risk exposure, and (4) an attractive earnings risk profile. We apply this measurement to investment portfolios of a broad sample of firms from 15 European countries of the MSCI Europe using typical investment portfolio characteristics.Results: We find that financially sustainable firms outperform both the broad market and firms with low financial sustainability for the time span July 2019 to March 2020.Conclusion: An investment strategy that invests in financially sustainable firms seems to be better capable of overcoming economic breakdowns such as the Corona crisis. We find that the returns increase with each of the four conditions that are included in the investment strategy. This underlines that considering financial sustainability is interesting for financial management, corporate governance and management control.

Macroeconomic Fluctuations with HANK&SAM: an Analytical Approach

Recently developed HANK models, which combine Heterogeneous Agents and New Keynesian frictions, have had a considerable impact on macroeconomics. However, due to the complexity of such models, the literature has focused on numerically solved models and therefore little is known about their general properties. This paper presents a tractable HANK model that integrates Search and Matching (SAM) frictions in the labor market. The model features an endogenous idiosyncratic earnings risk, which may be procyclical or countercyclical. When this risk is countercyclical, which we argue is the empirically plausible case, there is a downward pressure on real interest rates in recessions due to a precautionary savings motive. We show that in this setting (a) the economy may get stuck in a high-unemployment steady state, (b) the Taylor principle is insufficient to eliminate the local indeterminacy of the intended steady state, and (c) nominal rigidities and inincomplete markets are complementary in terms of amplifying the impact of shocks on the macroeconomy.

Earnings Risk in the Household: Evidence from Millions of US Tax Returns

Using detailed Internal Revenue Service administrative data on millions of households, we find that households effectively insure against much of the risk facing primary earners. We show that households face less risk than males alone, and households face roughly half the countercyclical risk increase. As a result of these risk differences, household certainty equivalent earnings are 19 percent higher than for males alone, and household certainty equivalent earnings fall by about half as much during recessions. To facilitate related research, we make available the aggregated data used in our analysis. (JEL D12, D13, E32, G51)

Risk of Investment in Human Capital and Skills Mismatch

This paper uses data from the fifth edition of the European Working Conditions Survey to examine the relationship between workers’ skills mismatch and risk of investment in work-related training. Apart from financial (earnings) worker’s risk, the study addresses also some non-financial facets of the investment risk. The results indicate that while mismatched workers have higher earnings risk than wellmatched ones, they also perceive their jobs as more insecure. Surprisingly, mismatched workers are also relatively more optimistic of having good career prospects and finding similarly paid employment. These findings did not allow a conclusion about the difference in non-financial risk between mismatched and well-matched workers.