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 infor- mation 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 stake- holder expectations, we hypothesized that legitimacy (agency) theory's ability to pre- dict 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.