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2020 | Book

A Brief Overview of the Book Read chapter Read first chapter

Mandatory Non-financial Risk-Related Disclosure

Measurement Problems and Usefulness for Investors

Author: Prof. Stefania Veltri

Publisher: Springer International Publishing

Part of: Springer Professional "Wirtschaft+Technik" , Springer Professional "Wirtschaft"

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About this book

This book focuses on the impact of the disclosure of non-financial risk, which could be seen as the most relevant non-financial information (NFI), in the aftermath of the 2014/95/EU Directive. The author analyses whether the switch from voluntary to mandatory NFI enhance the quality of disclosed NF risk-related information and the usefulness of the risk disclosure for investors. The book focuses specifically on the mandatory disclosure of non-financial (NF) risks as required by the EU Directive for listed Italian companies, investigating both the state of art of its disclosure and its usefulness for investors.

In doing so, the book contributes to fill two relevant gaps in risk literature. The first research gap is related to the insufficient investigation of the disclosure of NF risks. Companies mandated to disclose risk-related information focused mainly on financial risks, in spite of the width of the definition of risk, conceived as information about any opportunity, danger, threat, or exposure that has or could impact the company in the future. The second gap is that empirical evidence about the effects of corporate risk disclosures is still limited, and the potential benefits of the disclosure of information on risks have not been fully explored. In particular, the relationship between risk disclosures and firm value is under researched, as the risk literature mainly focuses on the incentives question, related to the motives for which companies decide to disclose.

The research in this book focuses on Italy, a country that provides a unique opportunity to examine the impact of mandatory NF risk disclosure on firm market value, being one of the biggest industrial European countries that had not mandatory legislation for NFI disclosure, and also one of the leading countries in voluntary corporate social responsibility (CSR) reporting at an international level. It has been carried out in the fiscal year 2017, the first year of the application of the mandatory NF disclosure for obliged Italian listed PIEs.

The book contributes both to the measurement literature, as it presents a self-constructed quality NF risks and to the value relevance analysis literature, providing evidence of the usefulness of financial and non-financial risk-related disclosures in the Italian context.

Table of Contents

Frontmatter

Measuring Non-Financial Risk Disclosure

Frontmatter
Chapter 1. A Brief Overview of the Book
Abstract
In October 2014, the European Union adopted Directive 2014/95/EU (hereafter EU Directive), which mandates companies of a certain size to draft and publish a non-financial declaration (NFD) related to the disclosure of corporate non-financial information (NFI) about society and the environment, with the ultimate aim to enhance the consistency and comparability of corporate NFI disclosed throughout the EU. NFI refers to a broad range of themes and issues such as environmental and social policies, impacts and long-term risks related to these policies and allows stakeholders to draw a more comprehensive and realistic picture of a company. In the book we intend to focus specifically on the mandatory disclosure of non-financial (NF) risks as required by the EU Directive for listed Italian companies, investigating both the state of the art of NF risk-related information disclosure and its usefulness for investors.
Stefania Veltri
Chapter 2. Risk-Related Disclosure
Abstract
The chapter focuses on risk disclosure, stressing the significance of risk disclosure (and the difference with reporting), and then separately investigates the main studies on financial and NF risk disclosure, examined under three relevant points: the determinants of disclosure, the character of disclosure (voluntary/mandatory) and the theoretical underpinning. The chapter ends illustrating the theoretical underpinning of the book, focused on the mandatory disclosure of NF risk-related information.
Stefania Veltri
Chapter 3. The Mandatory Non-financial Disclosure in the European Union
Abstract
In the chapter we focus on the path that led to the issuing of the 2014/95/EU Directive (hereafter EU Directive), and then we deeply analyse two important supranational initiatives, GRI and Integrated Reporting, and their relationships with the EU Directive. The chapter also provides a brief analysis of EU Directive, before examining deeply the Italian Legislative Decree 254/2016 which enacted the EU Directive in the Italian context. The chapter ends with the analysis of the sample on which we carried out our research, preceded by a summary of the main studies on the mandatory NFI disclosure in the Italian context.
Stefania Veltri
Chapter 4. Measuring the Quality of Non-financial Risk-Related Disclosure
Abstract
In the chapter we introduce the main research question of the book, namely, RQ: Does quality mandatory NF risk disclosure affect investors’ decisions? The answer to the research question requires a context in which to carry out the research (we justified the choice of Italy in the previous section), the analytical framework for NF risk-related disclosure to employ and an adequate methodology to measure quality NF risk disclosure. As for the framework for the mandatory NF risk disclosure, we focus on the NF risk disclosure categories as provided by the EU Directive implemented by the Legislative Decree 254/2016, preceded by a brief illustration of the other main existing frameworks of NF risk disclosure. As for the methodology, we focus on the most widely used method to measure narrative disclosure, the content analysis, focusing on the main approach that can be followed by researchers to content analyse corporate documents, that is, mechanistic and interpretive content analysis, also presenting the main empirical studies employing automated and manual content analysis. The last sections of the chapter are devoted to the concept of quality of disclosure and how it can be operationalized, to end with the self-constructed quality disclosure index used in our research to measure the mandatory NF risk-related information disclosure.
Stefania Veltri

Testing the Usefulness of Non-Financial Risk Disclosure

Frontmatter
Chapter 5. The Relationship Between Financial and Non-financial Risk
Abstract
In the chapter we introduce the first novelty element of our research. Different from the extant literature, which does not take into account the possibility that the financial and NF corporate risk disclosure could interact, we make a strong hypothesis in our research, namely, that the two typologies of risk disclosure are different yet interconnected and that financial risk disclosure affects the quality non-financial risk disclosure. In the chapter we illustrate the literature at the basis of our hypothesis, posit our research question and test our research hypothesis in the Italian context.
Stefania Veltri
Chapter 6. The Value Relevance Analysis
Abstract
In the chapter we illustrate the other theoretical framework at the basis of our research, that is, the semi-strong market efficiency theory, according to which, on average, the market reflects all the publicly available information. This theory is the necessary prerequisite to make the value relevance theory work, a theory that focuses on the shareholders’ perspective and investigates the variables that investors consider value relevant, to which they attach an autonomous value importance in effecting their investment decisions and the market value of the firms. The most famous model in value relevance analysis is the Ohlson model (OM) (1995) that we employed in the research. In the chapter we describe the three main assumptions of the model which lead to the baseline OM (1995), the criticisms of these assumptions, the simplified OM (1995) used in the empirical literature review, the main studies addressed to investigate the relationship between accounting fundamentals and the market value of the firm, the other information variable and the modified OM used in the research.
Stefania Veltri
Chapter 7. The Value Relevance of Financial Risk
Abstract
In this chapter we investigate the value relevance of financial risk-related information disclosure, that is, the usefulness of financial risk information for investors. In the chapter, we present the main empirical studies addressed to test the usefulness of financial risk information for investors’ investment decisions. On the basis of the literature, we posit our second research hypothesis, which we test on the sample identified in Chap. 3, after having modelled this research hypothesis with an Ohlson model-based value relevance regression equation.
Stefania Veltri
Chapter 8. The Value Relevance of Non-financial Risk
Abstract
In this chapter we investigate the value relevance of the NF risk-related information disclosure, that is, the usefulness of NF risk information for investors. In the chapter, we present the main empirical studies that address to test the usefulness of NF risk information for investors’ investment decision. On the basis of the literature, we posit our second research hypothesis, that we test on the sample identified in Chap. 3, after having modelled this research hypothesis with an Ohlson model-based value relevance regression equation.
Stefania Veltri
Chapter 9. The Mediating Role of Non-financial Risk
Abstract
In the chapter we systematize the three regression equation identified in Chaps. 5, 7 and 8, to hypothesize a mediating role of the NF risk on the association between financial risk and market value. To test this hypothesis, we run three regression equations simultaneously and analyse the beta coefficients to investigate whether NF risk fully mediates the risk market value association in the Italian context. As far as we are aware, this is the first value relevance study which does not ignore the relationships between the two kinds of risk, financial and non-financial, which we investigated in Chap. 5. This chapter ends with the main limits, future research directions and implications deriving from the results of our simultaneous equations model.
Stefania Veltri
Metadata
Title
Mandatory Non-financial Risk-Related Disclosure
Author
Prof. Stefania Veltri
Copyright Year
2020
Electronic ISBN
978-3-030-47921-3
Print ISBN
978-3-030-47920-6
DOI
https://doi.org/10.1007/978-3-030-47921-3