Company-Level Factors of Non-Financial Reporting Quality under a Mandatory Regime: A Systematic Review of Empirical Evidence in the European Union

Abstract

The relationship between non-financial reporting quality (NFRQ) and various company-level factors has been studied extensively, considering the mandatory requirements applicable under the Non-Financial Reporting Directive 2014/95/EU (NFRD) of the European Union. The purpose of this research is to systematize the results of previous published studies on the relationship between NFRQ and company size, financial performance, corporate governance, market performance, and sustainability performance, under a mandatory regime. Our study contributes to the literature by proposing a taxonomy of company-level factors grouped into five categories. We analyze the post-2017 period, focusing on the application of NFRD in the European Union. By applying systematic inclusion and exclusion criteria to a population of 618 articles from Scopus, we obtain a sample of fifteen articles that are subject to an in-depth analysis of correlation matrices. The systematic review resorts to the vote counting methodology to assess the existence and strength of relationships between the NFRQ and company-level factors, based on correlation coefficients. The summarized results indicate that company size, corporate governance, and sustainability performance are positive factors of NFRQ. Regarding corporate governance, we find that board independence, board size, foreign ownership, gender diversity, corporate governance quality, the existence of a sustainability committee, and sustainability-linked remuneration positively influence NFRQ. Our findings emphasize the need to explicitly consider the role of corporate governance and sustainability performance in improving NFRQ while transitioning to improved corporate sustainability reporting under the new Corporate Sustainability Reporting Directive 2022/2464 (CSRD). Our study has implications for academics who seek to engage in empirical research on various factors with positive or negative influence on sustainability reporting, throughout the transition from the NFRD to the CSRD. Policymakers may find our study useful in addressing specific areas of sustainability reporting that have a negative impact on corporate transparency, while practitioners may obtain valuable information on the challenges of transitioning to sustainability reporting and the implementation of mandatory assurance.