The predictive ability of legitimacy and agency theory after the implementation of the EU directive on non-financial information

Directive 2014/95/EU (the EU Directive) requires large companies to disclose information on the way they operate and manage social and environmental challenges, thus shifting the disclosure of non-financial information (NFI) from the voluntary to the mandatory realm. Building on the idea that regulatory changes can shape stakeholder expectations, we hypothesized that legitimacy (agency) theory's ability to predict NFI disclosure after the implementation of the EU Directive, and hence after NFI disclosure became mandatory, would decrease (increase). By relying on a hand-collected data set measuring NFI disclosure, we have found that legitimacy theory maintains its predictive ability in the new mandatory setting, while agency theory's predictive ability partially increases.