Economic Impact of the Move to Strategic Reporting in the U.K.

51 Pages Posted: 15 Jun 2021

See all articles by Ruizhe Wang

Ruizhe Wang

The University of Sydney

Chua Wai Fong

University of Sydney

Roger Simnett

Deakin University; UNSW Australia Business School, School of Accounting

Shan Zhou

The University of Sydney

Date Written: June 13, 2021

Abstract

The demand for enhanced corporate reporting has surged amidst debates as to its benefits. In 2013, the United Kingdom (U.K.) mandated Strategic Reporting (SR) for corporations, replacing Enhanced Business Reporting (EBR) (a form of enhanced Management Discussion and Analysis (MD&A)). We identify factors associated with high-quality SR, studying its economic impact. We also examine the economic impact of changes from EBR to SR. Using proprietary data from PwC U.K., we find corporate governance, financial resources, external monitoring mechanisms and CSR performance are key drivers for high-quality SR. Regarding economic impact, we find a positive association between the disclosure quality of Strategic Reports and capital market benefits, including higher liquidity, lower cost of capital, and more accurate, less dispersed analysts’ forecasts. The effects of higher liquidity and lower cost of capital are more pronounced in the post- compared to pre-SR period, suggesting SR enables more effective capital market communication than EBR.

Keywords: strategic reporting; integrated reporting; capital market; cost of capital; liquidity; analysts’ forecasts

JEL Classification: M41; M48; M14; G10

Suggested Citation

Wang, Ruizhe and Wai Fong, Chua and Simnett, Roger and Zhou, Shan, Economic Impact of the Move to Strategic Reporting in the U.K. (June 13, 2021). Available at SSRN: https://ssrn.com/abstract=3866003 or http://dx.doi.org/10.2139/ssrn.3866003

Ruizhe Wang

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

Chua Wai Fong

University of Sydney ( email )

H69 Economics and Business Building
Sydney, NSW 2006
Australia
+61286270693 (Phone)

Roger Simnett

Deakin University ( email )

75 Pigdons Road
Victoria, Victoria 3216
Australia

UNSW Australia Business School, School of Accounting ( email )

Sydney, NSW 2052
Australia
+61 2 9385 5825 (Phone)
+61 2 9385 5925 (Fax)

Shan Zhou (Contact Author)

The University of Sydney ( email )

University of Sydney
Sydney, NSW 2006
Australia

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