Mandatory sustainability reporting and the disclosure-performance gap: insights from the EU directive

Ammarah Tariq

Meditari Accountancy Research, 2025, vol. 33, issue 7, 536-567

Abstract: PurposeThis study aims to examine the influence of mandatory sustainability reporting on corporate transparency by determining whether such soft regulations drive a change toward substantive or symbolic transparency. It also investigates the role of country and industry in moderating a company’s compliance with sustainability-related regulations.Design/methodology/approachThe study uses difference-in-differences analysis to examine the influence of EU Directive implementation on corporate transparency, measured as the disclosure-performance gap. The treatment and control groups comprise companies from 17 European Union (EU) and 11 non-European Union Organization for Economic Cooperation and Development (non-EU OECD) countries, respectively. The time period spans from 2013 to 2022, with 2017 being the year of the treatment, i.e. the EU Directive implementation. The study uses various approaches to address endogeneity issues, including the multiple specifications method, parallel trend analysis, propensity score matching and control variables.FindingsIn the postimplementation period of the EU Directive, EU companies exhibited a shift toward a wider disclosure-performance gap, i.e. symbolic transparency. Additionally, civil-law (common-law) countries tend toward substantive (symbolic) transparency, and industries under higher stakeholder scrutiny are engaged in symbolic transparency.Research implicationsThis study provides empirical evidence that mandatory sustainability reporting leads toward symbolic transparency, reinforcing legitimacy theory. It examines transparency by using the novel approach of assessing the gap between sustainability disclosures and actual performance. The ten-year period adds to the significance of the results.Practical implicationsIt provides insights for policymakers for designing future regulatory frameworks.Originality/valueFirst, it offers a novel approach to analyzing the effectiveness of mandatory sustainability reporting by emphasizing on distinguishing between substantive and symbolic transparency by evaluating the disclosure-performance gap. Second, while it provides a comprehensive analysis of all EU companies’ transparency, it also uncovers the country-level and industry-level heterogeneity arising from variations in institutional environmental and stakeholder pressures. Third, it fills the frequently highlighted industry-, regional- and temporal gaps in the literature of mandatory sustainability reporting in general and the EU Directive in specific.

Keywords: Mandatory sustainability reporting; EU Directive; Substantive transparency; Symbolic transparency; Disclosure-performance gap; Signaling theory; Legitimacy theory; Institutional theory; Stakeholder theory (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eme:medarp:medar-02-2025-2838

DOI: 10.1108/MEDAR-02-2025-2838

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