Do Investors Reward the Quality of Integrated Reporting

Abstract

The need for a holistic view in the new era of information processing by investors has brought along the integrated reporting practice. With this type of reporting firms do not only report financial information to investors, they also communicate the value creation process by relating financial information to nonfinancial ESG information. International Integrated Reporting Framework provides firms to publish high quality integrated reports. This study aims to examine if the quality of IR disclosure matters for investment decisions of investors and whether this result is affected by firm characteristics such as size age or financing preferences. The sample includes 1210 firm-year observations that are obtained by analyzing the integrated reports of 242 firms that are included in integrated reporting index presented in IFRS foundation website for the period between 2019 and 2023. The findings of fixed effects panel data analysis reveal a significant positive effect of IR quality on returns especially for bigger firms with less reliance on external financing. On the other hand firm age and willingness to disclose IR are not priced by investors. The findings of this paper could help the managers shaping the reporting preferences as well as financing decisions by considering their effects on firm value. However managers should also consider the incremental effects of their local investment environment as this study does not divide the sample for countries or regions.