Value relevance of integrated reporting: perception of stock market investors

Abstract

As a newly emerged concept, Integrated Reporting (IR) has been diffused among the corporate world in various scales. However, IR is still an immature concept in Sri Lanka. For instance, adoption of integrated reporting is not yet compulsory for the companies listed in Colombo Stock Exchange (CSE) and companies tend to adopt IR on voluntary basis. Voluntarily adoption implies that there are some kinds of value addition from the IR practices otherwise those entities may not adopt IR. Lee et al., (2015) have investigated the association between IR and firm valuation. This study has explored the association between cross-sectional variation in IR disclosures and firm valuation in the period after the implementation of IR within the listed firms in South Africa. As the conclusion, it suggests that the firm valuation is positively associated with IR disclosures. Martinez (2016) has investigated the effects of IR on the firm’s value by considering the voluntary adopters of the IIRC’s framework. The results indicated that IR is positively associated with market value of the entity. Thus, IR can be depicted as a value creation momentum as evident by the previous studies. Nevertheless, some practitioners viewed that IR is one of most disruptive innovations in corporate reporting (Simnett and Huggins, 2015; Deloitte, 2015). Even though many in depth case studies and researches relating to IR are available, the day-to-day reality of IR remains elusive (Gibassier et al., 2018). These kind of findings from previous researches bring light to create new research avenues in investigating the value relevance of IR in relation to the investors rather emphasizing the value relevance of IR that directly perceived by the entity. Thus, the purpose of this study is to examine the perceived value relevance of IR by stock market investors in Sri Lanka. Previously, many researchers focused to examine the basis of IR concept (Aceituno et al.,2013; Lai et al.,2016; Arrubla and Grima, 2016; Villiers et al., 2017; Rensburg and Botha, 2013; Serafeim, 2014), difference

between sustainability reporting and IR while emphasizing the superiority of IR concept (Jensen and Berg, 2012; Soyka, 2013; Makiwane and Padia, 2013; Dragu and Tudor, 2013; Zyl, 2013; James, 2013; Aceituno et al., 2014), value relevance of IR concept and its association with firms characteristics (Kosovix and Patel, 2013; Yeo et al., 2014; Lee at al., 2015; Martinez, 2016). But, studies relevant to the value relevance of IR in the investor’s perspective is rare and this study attempts to fill that empirical gap.