Sustainability reporting or integrated reporting: which one is valuable for investors?

Abstract

Purpose This research is motivated by the development of dialogue and debate regarding company reporting in the form of sustainability reporting (SR) – which is separate from the annual report (AR) – or integrated reporting (IR). Research into SR and IR is still fascinating, and this study addresses the debate about them. This study aims to examine which of the two reports is more valuable for investors, and also examine whether IR has value relevance because the information in the IR could reinforce the importance of the accounting information. Design/methodology/approach As with previous studies, we adopted a valuation approach – the Ohlson model – to assess the value relevance of non-financial information (in the form of SR/IR) and financial information. As a preliminary study, we used non-financial information as a binary variable, i.e. a group of companies that issue sustainability reports and a group of companies that issue integrated reports. Therefore, they complement and interact with the financial statements’ information. This paper used panel data consisting of 931 firm-years of SR issuers and 922 firm-years of IR issuers in Europe and Africa in the period from 2005 to 2019. Findings The results showed that SR had a higher value relevance than IR. However, when the authors interact the corporate reporting form with the accounting information, IR had value relevance because the information contained in the IR could reinforce the importance of the accounting information. Practical implications This study will support regulators in various countries to monitor the reporting practices of companies in those countries. The results of this study provide evidence that sustainability reports get a higher response than integrated reports. However, when interacted with the accounting variables, information in the IR is considered to be more relevant than that found in the SR. Therefore, it is hoped that the results of this study will help the International Integrated Reporting Council (IIRC) in reviewing IR practices around the world so that the implementation of IR practices can be realized in accordance with the mission that the IIRC wants to achieve. Originality/value Research into the value relevance of SR and IR has been carried out by several previous researchers separately, but to the best of the author’s knowledge, there are no studies comparing the value relevance of the two.

Sustainability reporting in Africa: A systematic review and agenda for future research

“…Out of the 54 countries in the continent, only 15 were covered by the existing studies. In particular, a vast majority of the prior research focused on South Africa (n = 50), possibly due to her de facto mandatory requirement for all listed companies to prepare integrated and sustainability reports (Ackers & Eccles, 2015; Permatasari & Narsa, 2022). Two other countries with a significant number of studies are Nigeria (n = 22) and Ghana (n = 17).…”

Do female directors influence firm value? The mediating role of green innovation

“…Therefore, we use the hierarchical regression method to test the research hypothesis which consists of 108 firms for five years. The feasible generalized least squares (FGLSs) estimator was chosen to control for unobserved heterogeneity errors or commonly called heteroscedasticity (Asni and Agustia, 2021; Permatasari and Narsa, 2022).…”

Integrated Reporting: A Literature Review

“…Finally, the quality of governance in terms of human capital (HC) definition of IR in the for-profit sector appears to be more applicable to top management than the entire workforce (Cisi et al, 2019), varying by context. Companies in countries with high collectivism among employees, low power distance, and high uncertainty avoidance are more likely to produce integrated reports (Uyar et al, 2022), which ultimately reinforce the importance of accounting information (Permatasari et al, 2021). However, because the behaviours of different actors are deliberate and strategically calculated, IR proves more difficult in contexts where the diversity of overarching goals among different actors is prevalent, and each actor is unable to renounce its particular perspective (Afolabi et al, 2022).…”