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Integrated Reporting

Useful for investors?

Series:

Stefan Hannen

The introduction of Integrated Reporting (IR) is supposed to tackle shortcomings of corporate reporting that have been criticized for decades. The new reporting format intends to improve the understandability of corporate reports and broaden their often merely financial and backward-looking perspective. This study investigates the usefulness of IR for investors. A conceptual analysis provides an in-depth examination of the IIRC’s International Framework, the basis to prepare integrated reports. An empirical analysis examines the presence of IR in existing reports from South Africa and the USA, before testing potential consequences for the capital market. The findings have implications not only for investors, but also for the reporting firms, regulators and academics.

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5 Capital market consequences of Integrated Reporting

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5    Capital market consequences of Integrated Reporting

Building on the descriptive analysis in the previous chapter, this chapter deals with investors’ informed decision making. An explanatory study examines the capital market consequences of IR. Like in the descriptive study, an analysis of the related extant literature in the first section allows to derive the research gap that the explanatory study addresses. Drawing on theoretical reasoning, the second section formulates a hypothesis. After an outline of the methodology the results are presented and discussed.

5.1      State of research

Three different streams in empirical literature are relevant for this part of the study. The first stream includes research on the economic consequences of IR in general. As the previous chapters have elaborated, some of the most distinctive features of IR, in particular connectivity of information and conciseness, relate to the format of the report rather than the mere contents. Thus, the second stream of interest for this study contains literature on the market impact of different reporting formats. This stream also includes various studies that deal with the impacts of different shortcomings of corporate reporting. As outlined in chapter 4, some measures that reflect these shortcomings also determine the degree of IR. The third stream of literature deals with a particular market phenomenon, the investor underreaction effect. This effect describes market participants’ slow and/or insufficient reaction to news (Dreman/Lufkin (2000), p. 63; Hong et al. (2000), p. 266) suggesting that investors’ information processing may be a...

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