Impact of Integrated Reporting on the Value Relevance of Corporate Disclosures

Abstract

Purpose: The integrated reporting (IR) process allows companies to present their business in a clear and concise manner. It was intended to investigate whether corporate disclosures are more beneficial when integrated reporting is adopted. Theoretical framework: According to agency theory, market value of shares can be increased by providing investors with more concise, useful and relevant information. Integrated reporting which is the most recent advancement in the realm of corporate reporting facilitates to growing information needs of stakeholders. Thereby, this study examines whether integrated reporting enhance the value relevance of corporate disclosures which enhance the market value of firm. Design/Methodology/Approach: This study was conducted using data collected from Colombo Stock Exchange (CSE) listed companies. There were 121 companies included in the sample, representing each sector proportionately. The data was gathered from corporate annual reports from 2012 to 2019. In the analysis, the return model and price model were both used. Descriptive statistics, correlation and panel regression analysis were conducted for achieving the research objectives. Findings: The study discovered that Sri Lankan-listed companies had a low level of corporate disclosures, although it has improved significantly over time. Further, results of the study revealed that increasing the level of disclosures in annual reports had no significant impact on improving the firm value, indicating that there is no any value relevance of disclosures. Finally, it also concluded that the IR is not enhancing the value relevance of corporate disclosures. Research, practical and social implications: The study suggest that financial managers should encourage in communicating more timely and more relevant information in order to increase their market capitalization which represent the value relevance. Further financial reporting guidelines and practices need to be more regulated. At the same time this study highlights the importance of implementing innovative corporate reporting techniques to enhance investor confidence, thereby stimulating economic growth and benefiting a wider range of stakeholders. Originality/Value: Many researchers have investigated whether integrated reporting enhance the value relevance of accounting information. Still, existing research on the value relevance of corporate disclosures has not extensively explored the effects of adopting integrated reporting (IR) on this aspect.