Does effective and sustainable corporate governance mechanisms affect the relevance of non‐financial information?

Abstract The aim of this paper is to investigate the value relevance of non‐financial information (NFI) under the EU Directive 2014/95/EU, since its increasing importance over recent years. Adopting a panel data set with all listed firms in Germany, Spain, France and Italy, we obtain a final sample of 10,025 firms‐year‐observations in the period from 2017 to 2021. Through the lens of institutional theory, it emerges that firms adopt coercive, mimetic and normative pressure to be recognised by investors in their NFI practices. Furthermore, the presence of effective and sustainable corporate governance mechanisms improve accounting information (namely, Earnings Per Shares and Book Value of Equity Per Shares) and NFI. The contribution of this study is twofold. First of all, it enriches the literature about value relevance of NFI; second, it is beneficial for practitioners, such as investors, policy makers and regulators on the strategic levels of effective corporate governance mechanisms. NFI has a positive effect on capital market and improve investors' decision‐making by providing information on diversity, environmental matters, social and employees matters, human rights and anti‐corruption and bribery matters, which will favour the firms' implementation of more sustainable actions. Indeed, if investors recognise the importance of a certain firm's NFI, the market value of that firm will increase with consequent reputational and economic‐financial benefits. To the best of authors' knowledge, this is the first study that investigates the role of effective and sustainable corporate governance mechanisms on the value relevance of NFI.