Non-Financial Reporting: Economics and Real Effects
Environmental issues have recently gained a significant role in social discourse. It is generally assumed that corporate decisions can be influenced by reporting and disclosure rules – this has also been taken up by the European legislator. Non-financial reporting plays an important role in the European Green Deal. And the 2014 Non-Financial Reporting Directive (NFRD) represented a quantum leap in European non-financial reporting at that time. A revision of the NFRD is currently underway. While the importance of non-financial reporting is growing in policy making, there is currently not much theoretical underpinning.
Research questions
The goal of this project is to develop theoretical results on associations and causal effects of non-financial reporting (NFR) on firms’ sustainability investment decisions and how accounting regulation can influence them. For example, one focus of the project is on investors and capital markets and their reactions to NFR in terms of providing capital and pricing firms. Interdependencies of financial and non-financial reporting can occur and need to be identified. Similar interdependencies arise in quality assurance, particularly auditing of NFR. Another focus is on strategic interactions within the supply chain, as end producers rely on sustainability throughout the supply chain. All these results feed back to incentives to invest in sustainability in firms and to the policy-relevant question how (much) NFR should be regulated.
Approach
The unifying methodology we use in this project is analytical, economics-based research. This approach is based on game-theoretic and contracting models with asymmetric information and potential conflict of interest of the players. This methodology allows for rigorous analysis of interactions between players’ strategies and equilibrium properties. They are important to study commitment strategies, effects of asymmetric information, disclosure and investment incentives, earnings management/greenwashing, and related issues.
Innovation
Our results should lead to new theoretical insights that are interesting for empirical research to develop informed predictions and hypotheses that guide future research. Our research primary targets the international accounting research community. The results should also be useful to inform policy makers, accounting regulators and standard setters to guide them about potential effects, and unintended consequences, of regulation.
Primary researchers involved
The project is a central part to the research activities at the Center for Accounting Research, University of Graz, that also hosts the specialized doctoral program DART. The four applicants – Ralf Ewert, Michael Kopel, Georg Schneider, and Alfred Wagenhofer – are full professors in the accounting and institutional economics area. They are experts in analytical research and have successfully worked on related research projects for many years.
Team: Prof. Georg Schneider (project head), Prof. Alfred Wagenhofer, Prof. Ralf Ewert, Prof. Michael Kopel, Center for Accounting Research.
Funding: FWF
