THE EFFECT OF CORPORATE GOVERNANCE MECHANISMS ON INTEGRATED REPORTING: A STRUCTURAL EQUATION MODELLING (SEM) APPROACH

Abstract

This study investigates the level of integrated reporting of Malaysian listed companies and explores the potential effects of corporate governance mechanisms on integrated reporting. The annual reports of 150 companies listed on the main market, Bursa Malaysia, for the year ended 2014 were examined to analyze the companies' integrated reporting practices using content analysis. An integrated reporting index was constructed following the key elements of the integrated reporting framework established by the International Integrated Reporting Committee (IIRC). The study considered four corporate governance mechanisms: board composition, board size, board diversity, and ownership structure. The study used Multiple regressions to measure the impact of corporate governance mechanisms on the companies' integrated reporting initiatives. Structural Equation Modelling (SEM) was used to measure the effect of corporate governance mechanisms on the level of the companies' integrated reporting. The results showed that Malaysian companies' reporting of financial and non-financial information has not yet been integrated. Based on SEM analysis, the results indicated that only one variable, namely, the board size, was associated with the extent of integrated reporting. Board size was the most significant variable that influenced the level of integrated reporting of Malaysian public listed companies in 2014. The study contributes to the integrated reporting literature. It presents empirical evidence that corporate governance mechanisms influence companies' disclosure of integrated reporting information and, thus, providing additional data or information that will be significantly helpful for other researchers. The study will also stimulate the interest of academics in research activities concerning the characteristics of corporate governance mechanisms on integrated reporting activities. The findings are limited to the context of the study. It only looks at corporate governance mechanisms as a critical driver of integrated reporting and uses only the annual report disclosures from a single year.