Capital market effects of integrated reporting quality: evidence from South African context

Abstract

Purpose The purpose of this study is to examine the interplay between integrated reporting quality (IRQ) and capital markets. More specifically, the authors test the impact of IRQ on stock liquidity, cost of capital and analyst forecast accuracy. Design/methodology/approach The sample consists of listed firms on the Johannesburg Stock Exchange in South Africa, covering the period from 2012 to 2020. The IRQ measure used in this study is based on data from Ernst and Young. To test the proposed hypotheses, the authors conducted a generalized least squares regression analysis. Findings The empirical results evince a positive relationship between IRQ and stock liquidity. However, the authors did not find a significant effect of IRQ on the cost of capital and financial analysts’ forecast accuracy. In robustness tests, it was shown that firms with a higher IRQ score exhibit higher liquidity and improved analyst forecast accuracy. Additional analysis indicates a negative association between IRQ and the cost of capital, as well as a positive association between IRQ and financial analyst forecast accuracy for firms with higher IRQ scores (TOP ten, Excellent, Good). Originality/value The study stands as one of the initial endeavors to investigate the impact of IRQ on the capital market. It provides valuable insights for managers and policymakers who are interested in enhancing disclosure practices within the financial market. Furthermore, these findings are significant for investors as they make informed investment decisions.