Specificity in Non-Financial Disclosure - Regulated by Directive 2014/95/EU

Sammanfattning: We use textual analysis of annual reports to investigate if ESG disclosures, including biodiversity, regulated by the Directive 2014/95/EU provide the market with decision-useful information. Several studies have examined whether the directive has increased the quality of ESG disclosure but with mixed results. One possible explanation could be that it is difficult to quantify qualitative information. However, there is an emerging field of research that uses textual analysis and machine learning to extract quantifiable futures from financial and non-financial disclosures. Using annual reports covering the financial years 2013 to 2021 of European Union manufacturing firms, we estimate specificity of disclosures using textual analysis and machine learning. We find evidence that the specificity of disclosures discussing environmental, biodiversity, and social and employee related matters as well as the length of disclosures covering environmental and corruption and bribery related matters are associated with market reactions, hence, introducing value implicating information to the market.