The Association between Integrated Reporting and Firm Valuation

47 Pages Posted: 18 Sep 2016  

Kin‐Wai Lee

Nanyang Technological University (NTU)

Gillian H. H. Yeo

Nanyang Technological University (NTU) - Division of Accounting

Date Written: September 2, 2015

Abstract

This paper examines the association between Integrated Reporting and firm valuation. Using a sample of listed firms in South Africa, we examine the association between cross-sectional variation in Integrated Reporting disclosures and firm valuation in the period after the implementation of Integrated Reporting. We find that firm valuation is positively associated with Integrated Reporting disclosures. This result suggests that on average, the benefits of Integrated Reporting exceed its costs. We predict that Integrated Reporting reduces the information processing costs in firms with complex operating and informational environment. Consistent with our prediction, we find that the positive association between firm valuation and Integrated Reporting is stronger in the firms with higher organizational complexity, suggesting that Integrated Reporting improves the information environment in complex firms such as firms with high intangible assets, firms with multiple business segments and large firms. Furthermore, we find that in firms with higher external financing needs, the sub-sample of firms with higher Integrated Reporting have higher firm valuations, suggesting that Integrated Reporting mitigates the information asymmetry between corporate insiders and external suppliers of capital. Additional analysis indicates that firms with high Integrated Reporting outperform those with low Integrated Reporting both in terms in stock market and accounting performance.

Keywords: Firm valuation, Integrated Reporting, Corporate Disclosures.

JEL Classification: G30, G32, G34

Suggested Citation

Lee, Kin Wai and Yeo, Gillian H. H., The Association between Integrated Reporting and Firm Valuation (September 2, 2015). Review of Quantitative Finance and Accounting, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2839819

Kin Wai Lee (Contact Author)

Nanyang Technological University (NTU) ( email )

S3-B2A-19 Nanyang Avenue
Singapore 639798
Singapore

Gillian H. H. Yeo

Nanyang Technological University (NTU) - Division of Accounting ( email )

Nanyang Business School
Singapore, 639798
Singapore

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