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PurposeThe aim of this paper is to examine the effects of the European Non-financial Reporting Directive (2014/95/EU) on firms' sustainability reporting practices, especially reporting quantity (i.e. availability of information) and quality (i.e. comparability and credibility).Design/methodology/approachTo test the main hypotheses, the authors select 905 treated firms from the EU 28 + 2 countries for a difference-in-differences regression analysis of dependent variables from the Refinitiv ESG database.FindingsThe results suggest that the Directive influences sustainability reporting quantity and quality. Treated firms provide around 4 percentage points more sustainability information (i.e. availability) than propensity score matched control firms and are 19 percent more likely to receive external assurance (i.e. credibility). However, we also find that the Directive is not the decisive factor in the adoption of GRI guidelines (i.e. comparability).Research limitations/implicationsThe analysis is restricted to large listed firms and does not account for small, mid-sized and private firms. Further, cross-cultural differences which influence sustainability reporting are controlled for but not investigated in detail. The authors derive several suggestions for future research related to the NFR Directive and its revision.Practical implicationsThe authors’ findings have practical implications for the future development of sustainability reporting in the EU and for other regulators considering the adoption of sustainability reporting.Originality/valueThis study is the first to provide evidence on the NFR Directive's reporting effects across multiple countries. It adds to the growing literature on the consequences of mandatory sustainability reporting. Additionally, this paper introduces a novel measurement approach sustainability information quantity that could benefit researchers.

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This study investigates the economic auditor-client dependency issue by examining the association between abnormal audit fee pricing and audit quality. Our study is the first to analyze this phenomenon empirically for the institutional setting of German IFRS firms by using a sample of 2,334 firm-year observations for the period from 2005 to 2010. Our empirical results demonstrate that positive abnormal audit fees are negatively associated with audit quality and imply that the audit fee premium is a significant indicator of compromised auditor independence due to economic auditor-client bonding. Audit fee discounts generally do not lead to a reduced audit effort, or respectively, audit quality is not impaired when client bargaining power is strong. The association of positive abnormal audit fees and audit quality is robust to different audit quality surrogates such as absolute discretionary accruals, financial restatements, and meeting or beating analysts' earnings forecasts.

This study examines the factors that influence write-off decisions in German-listed companies. Write-offs have been widely discussed, especially for the US-American market, and a relation to earnings management has been found in existing studies. German companies differentiate from the companies that have already been analyzed as they operate under different accounting standards (IFRS) and in a different institutional setting.Additionally, managers are confronted with the task to derive the IFRS annual statements from the existing annual statements according to local GAAP which follow a differing objective. Based on a sample of 805 observations of German companies listed in the DAX, MDAX, TecDax and SDAX indices between 2004 and 2010, we analyze the impact of firm performance as well as reporting incentives on the write-off decision. We find that the write-off probability rises significantly with decreasing overall firm performance, which is in line with the legal requirements. Additionally, we find a strong relation of the write-off probability with unexpectedly high earnings, which is an indicator for income smoothing. Besides influencing the shareholders perception, income smoothing can serve to minimize overall tax payments or to influence the banks risk assessment. In contrast with prior studies focusing on the US-American market, we found no evidence for other capital market motives, like big bath accounting and management changes; neither could we confirm the hypothesis that earnings-based management compensation or leverage have a significant influence on the write-off decision. These results indicate that German managers aim to influence tax payments and potential lenders in contrast to the perception of potential shareholders.