Nonfinancial Information Disclosure and Intellectual Capital Performance. Empirical Evidence before the Implementation of the Directive EU/95/2014

Over the last decade, disclosure of nonfinancial information is gaining a momentum and attracting the attention from managers, consultants, financial institutions, investors, financial analysts, governments and communities leading companies to implement relevant changes in several key areas of corporate reporting. Recently, an important milestone has been achieved by the approval of the Directive EU/95/2014 issued on October 22, 2014 and focused on Disclosure of non-financial and diversity information by large companies and groups. All European State members have to implement these requirements in their domestic laws calling for large companies to disclose some nonfinancial issues on environment, employees, diversity and so on, by the fiscal year 2017. The measurement and assessment of sustainability disclosure and the appreciation of its benefits for investors and other stakeholders are linked to legitimacy theory as highlighted by several scholars (Patten, 1991; 1992; Deegan and Rankin, 1996; Hackston and Milne, 1996; Campbell, 2000; Wilmshurst and Frost, 200l; Cho and Patten, 2007; Laine, 2009; Hahn and Kuhnen, 2013). Nevertheless, the evaluation of nonfinancial disclosure has not to be evaluated in itself but also in terms of implications on firm performance and on value creation process. The relevant need to demonstrate a potential influence of ESG factors on financial performance (Wang et al. 2014) lead most studies to evaluate Corporate Financial Performance (CFP) including into regression analysis several variables related to some profitability ratios or accounting-measured indexes (i.e., Return On Assets, Return On Investment, sales growth, Return On Equity, etc.) as well as market-based indicators (i.e. earnings per share, book value per share, cash flow per share, etc. ) but underestimating the effects of nonfinancial disclosure on Intellectual Capital Performance (ICP). To address this gap, firstly it is crucial to measure (i.e. through some scores) the extent of nonfinancial information disclosed by Italian listed companies in the year immediately before the adoption of the European Directive. Then, this explorative study can contribute to assess the potential relationship between such nonfinancial disclosure and CFP/ICP, given the key contribution of intangible resources to the firm’s value creation process (Padgett and Galan, 2010; Surroca et al., 2010; Lòpez-Gamero et al., 2011)