Informational Content and Assurance of Textual Disclosures: Evidence on Integrated Reporting

Abstract

This paper examines the economic benefits associated with textual attributes and the external assurance of integrated reporting (IR), an innovative form of corporate disclosure that connects financial and environmental, social and governance (ESG) information in a single report. We investigate the empirical setting of South Africa, where IR has been mandatory since 2010 for listed companies. We find that IR readability is associated with a higher market valuation, conciseness is linked with higher stock liquidity and tone bias is associated with less dispersed analysts’ estimates. Results suggest that market participants seem to appreciate IRs that are readable, short and focused, as well as hint at possible tone management strategies targeting analysts. We also show that assurance on IR moderates the negative effects of poor textual attributes: if firms publish IRs that are difficult to read but assure them, this compensates for the negative influence of reading difficulty on a market value; if long IRs are assured, this dampens the negative effect of verbosity on liquidity; if firms assure IRs, analysts’ forecast dispersion is lower, therefore suggesting that assurance acts as a credibility-enhancing mechanism for external users. Finally, we show that textual attributes and assurance matter for broader audiences of stakeholders interested in the ESG dimensions of a firm’s performance.

Keywords: Textual analysis, Assurance, Integrated Reporting, Capital market effects, Financial Analysts, Readability, Tone, ESG, Impression Management Strategies.

JEL Classification: M40; M41; M42; G3; M14