Integrated reporting quality and cost of debt financing

Abstract

PurposeIn recent years, policymakers have increasingly pushed firms to disclose non-financial information. In Europe, integrated reporting (IR) is an increasingly adopted tool to fully comply with the requirements of the Directive 2014/95/EU. This study aims to examine the financial benefits of IR quality and specifically the effect on the cost of debt.Design/methodology/approachA manual content analysis is performed to measure the quality of the information contained in integrated reports. A panel regression model is used to test the effect of the IR quality on the cost of debt on a sample of 399 observations (a balanced panel of 133 European listed firms for the period 2017–2019).FindingsResults demonstrate a negative relationship between IR quality and the cost of debt, showing that firms that provide higher quality integrated reports benefit from access to third party financial resources at better conditions.Research limitations/implicationsThe results of this study offer important implications for managers and policymakers. The capacity of IR quality to allow a cost of debt reduction should push managers to a greater propensity towards transparency and the dissemination of high quality integrated reports. In addition, in light of the benefits connected to the IR quality, policymakers should push towards the adoption of IR as a solution to fulfil the regulatory obligations deriving from Directive 2014/95/EU.Practical implicationsResults show the goodness of IR as an ideal solution to fulfil the obligations imposed by Directive 2014/95/EU. The important financial benefits associated with IR quality make the high quality integrated report an ideal tool capable of fulfilling regulatory obligations and at the same time guaranteeing a reduction in the cost of debt.Originality/valueTo the best of the authors’ knowledge, this is the first work that analyses the relationship between IR quality and cost of debt.

Does integrated reporting quality matter to capital markets? Empirical evidence from voluntary adopters

“…Only few studies to date have considered IRQ in a voluntary setting. Raimo et al (2021) report a slightly negative effect of IRQ on the cost of debt for European firms. By focussing on debt capital markets and borrowing conditions of voluntary IR adopters, however, they do not analyze the information environment particularly relevant for equity investors.…”

“…Indeed, it might be that only high‐quality integrated reports provide an effective mechanism in voluntary settings. Latest research results indicate that IRQ is the more meaningful variable (Raimo et al, 2021). Hence, the current study examines the informational effects of IRQ in a setting of voluntary adoption.…”

The integrated reporting quality, cost of equity and financial performance in Islamic banks

“…By strengthening these links, IRQ can help companies make more sustainable decisions and enable investors and other stakeholders to understand an organization’s true performance. Several studies have highlighted the benefits of IRQ, Muttakin et al (2020) and Raimo et al (2021) reported that IRQ is beneficial for management because it allows a better understanding and a clear articulation of the relationships between financial and nonfinancial performance. As a result, IRQ also enables better risk management and better engagement of current and potential employees and other stakeholders.…”

Do Equity Investors Care about Environment, Social and Governance (ESG) Disclosure Performance? Evidence from India

“…These disclosures provide a lot of information related to pollution, gender policies, governance regime and environment friendly products. As a matter of fact, non-financial disclosure is of concern for various stakeholders, such as customers, workers and government (Raimo et al, 2019; Vitolla et al, 2019a; 2019b). Non-financial disclosure can remove the problem of information asymmetry between the management and investors (Vitolla & Raimo, 2018), which eventually will reduce cost of capital of the firm.…”