Quantitative impacts of mandatory integrated reporting

Abstract

Purpose This paper aims to examine the impact of the 2011 mandatory introduction of integrated reporting (<IR>) on the financial performance, risk and institutional shareholding of listed companies in South Africa to assess whether there is a benefit to <IR> and which may encourage greater adoption of it globally. It contrasts the results with two other African stock exchanges (Nigeria and Egypt with no mandatory <IR>) and examines whether <IR> quality also has an impact on these and on environmental, social and governance (ESG) disclosure scores. Design/methodology/approach A series of multivariate ordinary least squares regressions was estimated on a range of financial, risk, institutional and ESG data from firms on the three African stock exchanges, between 2006 and 2015. Findings Financial performance and risk in South African firms appear to have decreased since the start of mandatory reporting, but institutional shareholding has increased. The production of higher quality reports is associated with decreased financial performance and risk, higher institutional shareholding and increased ESG scores. Originality/value This study is first to test the quantitative effects of <IR> and <IR> quality on a broad range of financial performance and risk measures and the level of institutional shareholding. It also adds to the literature by assessing how the quality of <IR> can impact the ESG scoring of the business. Hence, this study is of interest to firms looking to adopt <IR> for its benefits and to regulatory bodies considering the mandatory adoption of <IR> in support of achievement of national social and environmental goals.

Archival research on integrated reporting: a systematic review of main drivers and the impact of integrated reporting on firm value

“…Akisik and Gal (2019) reported a positive link between IR adoption, stock price growth, ROE and ROA. Firm risk (Conway, 2019) and leverage (Lemma et al, 2019) are also lower alongside IR adoption in the mandatory South African setting; a positive effect on firm value is thus assumed. IR adoption also leads to improved CSR performance (Loprevite et al, 2018).…”

“…IR adoption also leads to improved CSR performance (Loprevite et al, 2018). Conway (2019), based on a South African setting, concluded that there was a negative relationship between IR adoption, IR quality, and financial performance, while there was a positive relationship between IR quality and CSR performance.…”

“…Similar relationships occur for the value relevance of earnings in voluntary IR regimes (Loprevite et al, 2018) and for organisational capital in South Africa (Tlili et al, 2019) Similar results occur for IR quality. Financial performance seems to be higher in both voluntary and mandatory IR settings, based on profit after taxes (Adegboyegun et al, 2020), ROA (Pavlopoulos et al, 2019), Tobin's Q [evidence in South Africa: Moloi & Iredele, 2020, Barth et al, 2017;Lee & Yeo, 2016;Dey, 2020 (Bangladesh); based on IR readability: Caglio et al 2020], and lower firm risk (Conway, 2019). Other studies have stressed a positive impact of IR quality on the market value of equity (Pavlopoulos et al, 2019), and CAR (Pavlopoulos et al, 2019;Cosma et al, 2018).…”

Information Asymmetry and Firm Value on Web-Based Integrated Reporting System Quality

“…The IR system has economic implications based on the results of previous studies (Akker, 2017;Barth et al, 2016;Conway, 2019;Zhou et al, 2017;Zúñiga et al, 2020). Companies implementing IR systems will have an impact on the increase in value creation and transparency (Conway, 2019).…”

“…Non-financial information adds value to the quality of information needed by investors and stakeholders, regarding a company's ability to manage its resources. According to Akker (2017) and Conway (2019), traditional financial reporting does not adequately explain the economic implications of innovation in a company's business activities. Therefore, to complement financial information, the non-financial information disclosed by the company will at least elicit a response from stakeholders.…”