The Real Effects of Mandatory Nonfinancial Disclosure: Evidence from Supply Chain Transparency

This paper studies whether and how mandatory nonfinancial disclosure affects firms’ real decisions. I exploit a disclosure regulation enacted in California, which mandates that firms disclose how they conduct due diligence to address their suppliers’ human rights abuses. I find that treated firms increase their supply chain due diligence, and their suppliers’ human rights performance improves following the regulation. The effects are stronger when firms face greater pressure from non-governmental organizations (NGOs) and socially conscious shareholders, when customers have greater incentives to use the newly disclosed information, and when the regulation leads to a larger increase in information comparability. Collectively, the results suggest that mandatory nonfinancial disclosure can affect firms’ real decisions through market mechanisms and that stakeholder responses play a key role.

Restoring an eroded legitimacy: the adaptation of nonfinancial disclosure after a scandal and the risk of hypocrisy

PurposeThis study contributes to the literature on hypocrisy in corporate social responsibility by investigating how organizations adapt their nonfinancial disclosure after a social, environmental or governance scandal.Design/methodology/approachThe present research employs content analysis of nonfinancial disclosures by 11 organizations during a 3-year timespan to investigate how they responded to major scandals in terms of social, environmental and sustainability reporting and a content analysis of independent counter accounts to detect the presence of views that contrast with the corporate disclosure and suggest hypocritical behaviors.FindingsFour patterns in the adaptation of reporting – genuine, allusive, evasive, indifferent – emerge from information collected on scandals and socially responsible actions. The type of scandal and cultural factors can influence the response to a scandal, as environmental and social scandal can attract more scrutiny than financial scandals. Companies exposed to environmental and social scandals are more likely to disclose information about the scandal and receive more coverage by external parties in the form of counter accounts.Originality/valueUsing a theoretical framework based on legitimacy theory and organizational hypocrisy, the present research contributes to the investigation of the adaptation of reporting when a scandal occurs and during its aftermath.

Hypocrisy and legitimacy in the aftermath of a scandal: an experimental study of stakeholder perceptions of nonfinancial disclosure

PurposeThis study aims to investigate how stakeholders perceive the company's nonfinancial disclosure after a scandal has occurred. More specifically, the authors examine whether and how sustainability reporting practices in the aftermath of a scandal can influence the perceptions of stakeholders in terms of hypocrisy and legitimacy.Design/methodology/approachThe present research represents a companion paper to another study in this issue that investigates the adaptation of companies' reporting behaviors after a scandal. The results of the initial qualitative study informed the subsequent quantitative study developed in this article. The authors build on the evidence of the main paper and perform a 2 × 2 between-subjects experiment to examine how stakeholders perceive the actions of companies that aim to restore their eroded legitimacy through social, environmental and sustainability (SES) reporting.FindingsThe results suggest that when companies take responsibility and develop remedial, socially responsible corporate activities are perceived as less hypocritical and more legitimate. Moreover, we show an interaction effect between taking responsibility and developing remedial socially responsible actions on hypocrisy and legitimacy perception.Originality/valueThe present research takes advantage of an experimental design to investigate the effects of the adaptation of SES reporting from the perspective of stakeholders. The study provides insightful theoretical and practical implications for managers regarding how to handle a reputational loss and avoid perceptions of hypocrisy.

Mandatory Nonfinancial Disclosure and Its Consequences on the Sustainability Reporting Quality of Italian and German Companies

Companies disclosing nonfinancial information through sustainability reporting practices provide markets with data on their social, environmental, and governance performance. The quality of sustainability reporting is much discussed in the literature because this quality affects factors such as the credibility of accountability and building stakeholders’ trust in the company. Nonetheless, the concept of quality is multidimensional, and empirical evidence relating to the quality of sustainability reporting presents different findings. Regulations on mandatory nonfinancial disclosure (NFD) open new perspectives for research on sustainability reporting quality (SRQ). This study explored the effect of introducing mandatory NFD on SRQ by focusing on the effects of new legislation (Directive 2014/95/EU) introduced in Italy and Germany. The analysis was conducted through qualitative content analysis of the sustainability reporting practices of Italian and German companies in the top lists of stock exchanges. Sustainability reporting practices of one year before (2016) and one year after (2017) the implementation of Directive 2014/95/EU were compared. The results of 132 observations demonstrated that the quality of sustainability reporting increased after implementation of the law on mandatory NFD. Further, the effect of the law seemed to reduce the differences in SRQ of the two countries before the introduction of mandatory NFD. The results suggested that obligatoriness of NFD affects SRQ together with other relevant determinants focused on by previous research (e.g., company size and industry type).