Strategic information disclosure, integrated reporting and the role of intellectual capital

Abstract

Purpose The purpose of this paper is to use a theoretical and empirical model to investigate the adoption of the integrated reporting (IR) framework as a strategic choice to signal intellectual capital (IC) to equity investors, with specific reference to the pharmaceutical industry. Design/methodology/approach The choice of drafting an integrated report is modelled as a means for managers to strategically disclose price-relevant information related to IC. The voluntary disclosure model developed by Verrecchia (1983) is used, also introducing the role of financial analysts to derive a directly reproducible empirical equation. Findings Theoretically, as IR requires managers to exert an effort in reporting activity, this work shows that in equilibrium, only firms with sufficient IC have decided to adopt IR, resulting in rational investors’ willingness to pay more only for the forecasted earnings of integrated reporters. This theory is tested in the pharmaceutical sector, where the modelling choice is probably more valid, with mixed results. Research limitations/implications When compliant with the International Integrated Reporting Council’s (IIRC) standards, IR provides the means to disclose IC in a perfectly verifiable way. Furthermore, since the IIRC has only recently been established, the conclusions have only been tested on a limited data set. Originality/value This work connects the value relevance of IR to IC by adopting an equilibrium approach, which, in turn, provides specific indications of how to build a consistent empirical test of the theory.

The role of board of directors in intellectual capital disclosure after the advent of integrated reporting

“…In relation to the determinants, Zuraida and Mulyany (2019), analysing 280 IPO prospectuses of Indonesian companies, found a positive and significant effect of year and firm size on ICD level. Other studies have analysed integrated reports (Abeysekera, 2013; Abhayawansa, Guthrie, & Bernardi, 2019; Beretta et al, 2019; Camodeca, Almici, & Sagliaschi, 2019; Casonato et al, 2018; Dumay, 2016; Dumay et al, 2019; Melloni, 2015; Terblanche & De Villiers, 2019; Veltri & Silvestri, 2015; Vitolla, Raimo, & Rubino, 2019b), but only two analysed the determinants of ICD. In this regard, Melloni (2015) highlighted how declining performance, the level of intangibles, and firm size influence the positive tone of ICD, while Beretta et al (2019) demonstrated the existence of a positive relationship between non‐financial performance and the optimistic tone of ICD.…”

Intellectual capital accounting in the age of integrated reporting: a commentary

“…Five papers published in this JIC special issue examine disclosure of IC through integrated reports and attributes of such disclosure. Camodeca et al (2019) directly address the debate publicly available information in other media. The authors conclude that the IR paradigm is being co-opted by impression management strategies to improve legitimacy through trust, reputation and social capital.…”

“…The study assumes that integrated reports, when compliant with the International IR Framework, provide credible, precise and truthful information related to IC. The study, which focuses on the pharmaceutical industry, finds only companies with sufficient IC adopt integrated reporting, indicating that managers adopt the International IR Framework to signal companies' IC to the capital market.The study byTerblanche and De Villiers (2019) complementsCamodeca et al (2019) by examining whether integrated reports are associated with more IC disclosure and whether companies with greater exposure to capital markets as a result of being cross-listed in an…”

Sustainability Disclosure in Integrated Reporting: Does It Matter to Investors? A Cheap Talk Approach

“…The economic environment presented resembles the model economy described in Camodeca, Almici and Sagliaschi [118], where intellectual capital was a key variable to explain the risks underlying corporate performances. This study considers a similar approach in order to model companies operating in sectors where environmental safety and social spill-overs could instead largely affect business risks.…”