Many studies point to the low quality of explanations given in comply or explain mechanisms in corporate governance and non-financial reporting regulations (MacNeil and Li 2006;[8] Cuomo et al 2016;[9] FRC 2021[10]).
Similar results are found when studying non-compliance explanations in the realm of European non-financial reporting (Björklund 2021;[16] Monciardini et al. 2020;[17] Szabó and Sørensen 2015;[18] Boiral 2013[19]).
This collection of research indicates that possible high levels of ‘compliance’ with corporate governance codes and non-financial reporting requirements are in fact much lower due to the large percentage of inadequate explanations.
Due to the drawbacks to the comply or explain approach, several studies have proposed that an increased level of (public) enforcement and supervision is necessary in order to monitor inadequate explanations of non-compliance.
Studies conducted in Germany, Italy and the Netherlands give insights into which qualities often indicate high-quality non-compliance explanations (Talaulicar and Werder 2008[12]); Hooghiemstra 2012;[14] Lepore et al. 2018[13]).