Independent minority directors against self‑serving and manipulative practices in non‑ financial reporting

In a principal-principal setting, the presence in the boardroom of independent directors appointed by minority shareholders can provide a unique and effective corporate governance solution to reduce agency costs related to undue appropriation of the private benefits of control by majority shareholders to the detriment of minority ones and compress information asymmetry issues. Independent minority directors acting as conduits of information to the market facilitate further engagement by active shareholders, promote better communication, and reduce disclosure manipulation. The growing relevance of Corporate Social Responsibility (CSR) related information on decision investment and the easy manipulation of non-financial information has prompted the authors of this paper to investigate whether independent minority directors can play an important monitoring role in conveying non-financial information to the market, thereby reducing managerial self-serving and manipulative practices in non-financial reporting. By examining a sample of Italian-listed companies from 2017 to 2020, we perform a lexicon-based content analysis on their non-financial reports and then use panel data dependence techniques to address our research aim. Our results suggest that, by reducing managerial self-serving and manipulative practices of non-financial reporting, minority shareholders’ representativeness impacts firms’ communication choices. This evidence confirms that independent minority directors are the right path for boosting minority shareholders’ legal protection and ensuring investors’ awareness in the decision-making process.