Disclosure and Managerial Use of Regulatory Information in the Energy Industry: Evidence from Italy and the European Union

In recent times, energy companies have received increased attention in societal and political discourse. Climate change, environmental pollution, and rising electricity prices are some pressing concerns that have brought them into “the public eye”, putting pressure to become more accountable towards multiple stakeholders, from investors to the broader community. Despite these challenges, too little effort has been devoted to investigating disclosure practices and the managerial use of regulatory information in this sector. This study addresses this gap by focusing on the electric sector, an intriguing context for investigation due to the convergence of three main characteristics. First, the electric industry is highly regulated at both European and national levels, requiring companies to produce detailed quantitative and qualitative information for regulatory purposes. This aligns with the compliance logic. Second, electric companies also embrace the principles of the business logic. They compete in a competitive market environment, employing strategies akin to those of the private sector, driven by the pursuit of maximising financial value. Lastly, given their role as essential public service providers, electric companies engage with the community logic, which mandates their active involvement in environmental and societal matters, reflecting their broader commitment to social responsibility. Based on these arguments, this thesis is organized into four parts. The initial part provides an overview of the sector. Section I explores the managerial use of accounting information produced for regulatory purposes in an Italian setting. The subsequent two sections extend the discussion to the European Union energy context. Section II presents empirical evidence on the quantity and quality of forward-looking disclosure, drawing insights from cross-industry comparisons, specifically energy and steel companies. Lastly, Section III centers its attention on Sustainable Development Goals (SDGs) reporting and control. The first section examines whether Italian energy utilities use regulatory information for internal decision-making and control. It adopts an institutional lens to explore the extent to which the regulatory information imposed by the Italian Regulatory Authority for Energy, Networks, and Environment (ARERA) and used for decision-making and control influence their management control systems. Based on data from surveys and complementary semi-structured interviews with Italian energy utilities, the findings reveal that the large majority of the sampled firms use regulatory information for decision-making and control, though there are differences according to firm size and operating activity. Large-sized utilities and energy distributors use the regulatory information for performance monitoring, benchmarking analysis, and investment decision-making. On the contrary, medium-sized utilities and energy traders produce the information solely for compliance and do not use it in their day-to-day activities, suggesting a tendency to couple formal structures and internal behaviors loosely. Further, this paper unveils that the regulatory requirements affected the control systems of energy utilities either radically or incrementally, leading to improved cost accounting systems, the creation of internal routines, and loop learning processes. These findings extend the managerial use of accounting information, providing novel insights from the Italian energy sector. To the best of my knowledge, this is the first attempt to explore the internal use of regulatory information in the Italian energy industry. The findings also enrich the institutional management accounting research by showing that external regulatory pressure has either a radical or an incremental influence on the management control systems of energy utilities. Overall, the findings highlight the regulator’s role as a driver of performance control and improvement within the energy industry. The second section examines the quantity and quality of forward-looking information within annual reports of European Union electric utilities, comparing them to those of steel companies for the period 2018-2021. Using a balanced panel of 200 firm-year observations, this paper investigates the impact on forward-looking disclosure of two factors: i) the release of relevant regulatory statements related to risk preparedness, environmental, and climate change in 2019, and ii) industry-specific regulatory pressures. Results from fixed-term panel analysis reveal that both electric and steel companies increased their forward-looking disclosure following the publication of the regulations. However, electric utilities surpassed steel companies in both the quantity and quality of forward-looking disclosure. These findings contribute to the existing literature on forward-looking disclosure by presenting contemporary and comparative insights on the level and quality of future-oriented information across two industries, namely the electric and steel sectors. Furthermore, the findings contribute to the forward-looking literature by confirming the positive influence of regulatory initiatives in triggering increased responsiveness among firms towards the future, ultimately leading to improvements in the quantity and quality of forward-looking information. In conclusion, the findings of this study can inform policy decisions to formulate supportive policies aimed at promoting the dissemination of forward-looking information and nurturing a future-oriented culture. Finally, the third section serves a dual purpose. First, it investigates how comprehensively do electric utilities report on SDGs. Second, it investigates which management control instruments and mechanisms these companies employ to manage and control their contribution to SDGs. The findings show that electric utilities already incorporate the SDGs into their reporting, although some goals receive more comprehensive coverage than others. Electric utilities primarily address SDGs related to industry innovation and biosphere preservation, while those related to societal well-being tend to receive less attention. Additionally, a more comprehensive SDGs reporting was observed among private-owned electric utilities than among public-owned ones, and electric utilities in developed markets showed higher SDG reporting levels than those in emerging markets. Regarding management control instruments and mechanisms used, the study reveals that electric utilities predominantly rely on administrative controls to address the SDGs, often combining administrative and cultural controls on one side and planning, cybernetic, and reward and compensation controls on the other. However, while the analysis suggests that electric utilities are on track to a more holistic approach to management controls for sustainable development, it also indicates room for improvement in governance structure, operational planning, and financial metrics. Overall, the findings contribute to the evolving SDGs literature by providing insights from the energy sector in the European Union, not only in terms of reporting but also in terms of control practices applied, thus enriching the ongoing discourse on the alignment between rhetoric and practical actions. The findings offer insights for guiding policy and managerial decisions. Policymakers can benefit from these insights to further encourage SDGs contributions, with initiatives for public-owned electric utilities and those in emerging markets. Meanwhile, managers can use these findings to improve SDGs reporting and better integrate controls to govern their progress toward sustainable development. With its findings, this thesis enriches the existing body of literature on energy utilities by addressing research questions with practical implications. Firstly, it sheds light on whether regulatory requirements serve a practical purpose for firms in their internal decision-making and control processes. This insight can inform regulatory authorities in taking necessary actions to stimulate the internal use of regulatory information as well as uncover the reasons behind the underutilization of such information by some utilities. Secondly, it provides policymakers with insights into the level and quality of forward-looking disclosure by electric companies operating in the European Union, thereby encouraging the communication of forward-looking information and fostering a future-oriented culture. Furthermore, the findings provide critical insights into the active engagement of electric companies in discussions and actions related to their contribution to SDGs and recommend policy initiatives for a more responsive economy.