Effects of Integrated Reporting on the Firm's Value: Evidence from Voluntary Adopters of the IIRC's Framework

Abstract

Purpose: The aim of the current paper is to evaluate potential external benefits related to capital markets of the Integrated Reporting Framework on a sample of international voluntary adopters. Design/methodology/approach: Difference-in-difference (DiD) estimators were used to test the hypotheses. A data sample of ‘treated’ and ‘control’ firms was constructed using Propensity Score Matching (PSM). The ‘treated’ data sample is comprised exclusively of firms included in the IIRC’s database as of September 2016.Findings: The results indicate Integrated Reporting is positively associated with market value and expected future cash flows, but not with bid-ask spread or implicit cost of capital. The results suggest that Integrated Reporting enhanced investor’s perception of the firm’s future cash flows but did not improved the firm’s information environment. Additional tests on the parallel assumption, level of Environmental, Social, Governance (ESG) disclosures, percentage of institutional investors, analyst following, and forecast error confirm this conclusion. The results coincide with the findings of Barth et al. (2016), differing only on bid-ask spread. A possible explanation for the discrepancy is provided.Research implications/limitations: The results of the paper could help companies (stock exchanges) in their decision of adopting (endorsing) the Framework. However, the researcher acknowledges a small sample size and the fact that most of the observations are big multinational firms potentially reduces the generalizability of the results.Originality/value: The study complements previous research that up to date has had its focus limited to firms listed on the Johannesburg Stock Exchange (JSE). Furthermore, it isolates the effects of Integrated Reporting from those of Sustainability Reporting by using a DiD approach.