Determinants of Materiality of Non-Financial Disclosure and Implication on Information Asymmetry A study of environmental disclosure of environmentally sensitive industries

Abstract

This study explores the influence of non-binding guidelines published by EU Directive to the materiality of companies' non-financial reports. In order to identify the materiality level of NFR, the authors manually assess the materiality level of each report by giving scores according to the materiality disclosure quality (MDQ) index. This study investigates how the level of materiality may be determined by firm-level and market-level factors. Additionally, this study also investigates the materiality effect on information asymmetry. The targeted observations are the environmental disclosures of environmentally sensitive industries which consist of oil and gas, mining, and utilities. The results of this study indicate that companies in developed markets tend to disclose higher levels of materiality of environmental information. We also find that the materiality level of NFR is highly affected by which industry the company belongs to. However, the finding does not indicate that levels of materiality have significantly influenced information asymmetry.