Integrated Report Quality: Share Price Informativeness and Proprietary Costs
52 Pages Posted: 11 Jun 2021 Last revised: 10 Aug 2021
Date Written: August 10, 2021
Our study addresses whether integrated report quality, IRQ, is positively associated with greater price informativeness and the extent to which the greater price informativeness is diminished when firms have higher proprietary costs of disclosure. In integrated reports, firms integrate financial and non-financial information to explain how it uses financial, manufactured, intellectual, human, social and relationship, and natural capitals to create value. Financial statements and sustainability information are key to integrated reports. Based on firms in South Africa, which mandates integrated reporting, we find IRQ is significantly negatively related to synchronicity, and, thus, positively related to price informativeness. This finding indicates higher quality integrated reports enable investors to make more informed decisions and, thus, allocate capital more efficiently. All twelve IRQ components are negatively associated with synchronicity, eleven significantly so. Thus, most dimensions of IRQ, and integration of financial and non-financial information, including sustainability information, contribute to greater price informativeness. Synchronicity and IRQ are significantly less negatively related for firms with higher proprietary costs, particularly costs associated with growth opportunities and intangible assets. For firms with these costs, IRQ is insignificantly associated with synchronicity. Our study informs the rapidly changing standard-setting landscape for integrated financial and non-financial information, particularly sustainability information.
Keywords: integrated reporting, share price informativeness, proprietary costs, sustainability
JEL Classification: G12, G14, G2, M1, M2, M4, M41
Suggested Citation: Suggested Citation