What Drives the Level of Non-financial Assurance in PIEs? Empirical Evidence on the European Firms Listed on Forbes 2000

Abstract

Since December 2017, all the European members have transposed the Directive 2014/95/EU into their legal systems. The aim of the directive was to promote the harmonization of non-financial information through the definition of guidelines aimed at regulating its content. In accordance with the principle of gold plating, the transposition of the directive into national legal systems has been characterized by the prediction of different constraints. In particular, the Member States have provided for different rules on the activity of external assurance. This phenomenon represents one of the most difficult for an effective non-financial reporting harmonization in Europe. The provision of a third-party assurance is one of the most important drivers to achieve legitimization by the stakeholder. In particular, previous studies have shown that non-financial information presents a physiological gap in credibility toward stakeholders. This credibility gap stems from the risk of greenwashing; that is, the attitude of management to report false or untruthful information of a non-financial type in order to pursue utilitarian benefits. Also, from the investor’s point of view, the third-party external assurance could be useful to evaluate the firm’s performance before investing. In particular, it shows that assurance of sustainability reporting is comparable, in terms of its effects on stakeholders, to the financial statement certification process. According to previous studies, the aim of this paper is to evaluate the quality of the third-party external assurance of the non-financial information produced by the European PIE in 2017. Our findings will provide further information regarding the effective level of harmonization of non-financial reporting in Europe after the implementation of the Directive 2014/95/EU. Also, we evaluate how the legal provision of a third-party external assurance impacted the choice of firms to adopt this kind of legitimization strategy.