Do Corporate Governance mechanisms affect the non-financial reporting readability? Evidence from Italy

Purpose - This study investigates whether corporate governance mechanisms can affect the readability of non-financial reporting required by Directive No. 2014/95/EU. In particular, it examines the impact of board independence, gender diversity, the social committee and the impact of the social rating on non-financial information (NFI) readability. Design/methodology/approach - The analysis is performed on a sample of 82 firms listed in Italian Stock Exchange mandated by the EU Directive, and covers the periods 2017 and 2018. We used the Gunning-Fog index to measure the NFI readability. Thus, we perform a regression analysis to empirically test its association with test variables and some other control variables. Expected Findings - Our findings show that board independence, the social committee, gender diversity and the social rating (i.e. the ESG score) improve the NFI readability of Italian listed firms. Originality/value/contribution - This research contributes to the academic debate in several ways. Firstly, it adds fresh insights into the literature on the role played by corporate governance mechanisms on NFI readability. Secondly, this study provides useful information to give policymakers a better understanding of the factors that improve the NFI readability of firms. Thirdly, findings may help regulators in confirming that the establishment of a social committee is a step in the right direction to enhance firms’ NFI readability.