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Integrated reporting, financial reporting quality and cost of debt
journal contribution
posted on 2020-01-01, 00:00 authored by Mohammad MuttakinMohammad Muttakin, Dessalegn Mihret, Tesfaye Taddese Lemma, Arifur KhanArifur KhanPurpose
Although proponents of integrated reporting (IR) advocate that this emerging practice has the potential to transform corporate reporting, the eventuation of this expectation would depend on the incentive IR provides to firms. This study aims to examine whether IR is associated with cost of debt and whether IR moderates the relationship between financial reporting quality and cost of debt.
Design/methodology/approach
Based on insights drawn from information asymmetry and agency theories, the authors develop models that link IR and financial reporting quality with a firm’s cost of debt. The authors analyze 847 firm-year observations drawn from non-financial firms traded on the Johannesburg Stock Exchange, for the period between 2009 and 2015.
Findings
The authors find that firms that provide integrated reports tend to have a lower cost of debt than those do not provide IR. The authors also find an inverse association between financial reporting quality and cost of debt, and that integrated reports accentuate this association. The findings suggest that the debt market perceives value in the information presented in integrated reports beyond what is furnished in financial reports.
Originality/value
To the best of the authors’ knowledge, this study is the first to document evidence suggesting that the debt market perceives value in the information presented in integrated reports, beyond what is furnished in financial reports.
Although proponents of integrated reporting (IR) advocate that this emerging practice has the potential to transform corporate reporting, the eventuation of this expectation would depend on the incentive IR provides to firms. This study aims to examine whether IR is associated with cost of debt and whether IR moderates the relationship between financial reporting quality and cost of debt.
Design/methodology/approach
Based on insights drawn from information asymmetry and agency theories, the authors develop models that link IR and financial reporting quality with a firm’s cost of debt. The authors analyze 847 firm-year observations drawn from non-financial firms traded on the Johannesburg Stock Exchange, for the period between 2009 and 2015.
Findings
The authors find that firms that provide integrated reports tend to have a lower cost of debt than those do not provide IR. The authors also find an inverse association between financial reporting quality and cost of debt, and that integrated reports accentuate this association. The findings suggest that the debt market perceives value in the information presented in integrated reports beyond what is furnished in financial reports.
Originality/value
To the best of the authors’ knowledge, this study is the first to document evidence suggesting that the debt market perceives value in the information presented in integrated reports, beyond what is furnished in financial reports.
