Does Integrated Reporting Matter to the Capital Market?

Abstract

Integrated reporting (IR) is an emerging international corporate reporting initiative arising to address, inter alia, the limitations of the current corporate reporting suite which are commonly criticized for being both voluminous and disjointed. While IR is gaining in popularity, current momentum is limited until there is clear evidence of benefits. Utilising the most suitable setting currently available, being disclosures in accordance with the Johannesburg Stock Exchange IR listing requirements, this study provides evidence of such benefits by finding that analysts’ forecast error and dispersion reduces as the level of alignment with the IR framework increases. Further, the improved alignment is associated with a subsequent reduction in the cost of equity capital for certain reporting companies. The results are obtained after controlling for factors relating to financial transparency and the issue of standalone non-financial reports, suggesting that IR is providing incrementally useful information over existing reporting mechanisms to the capital market.

Keywords: Integrated Reporting, Cost of Equity Capital, framework, analyst forecast error and dispersion