Abstract
In this paper, I examine the relation between Integrated Reporting (IR) and the composition of a firm’s investor base. I hypothesize and find that firms that practice IR have a more long-term oriented investor base with more dedicated and fewer transient investors. This result is more pronounced for firms with high growth opportunities, not controlled by a family, operating in ‘sin’ industries, and exhibiting more stable IR practice over time. I find that the results are robust to the inclusion of firm fixed effects, controls for the quantity of sustainability disclosure, and alternative ways of measuring IR. Moreover, I show that investor activism on environmental or social issues or a large number of concerns about a firm’s environmental or social impact leads a firm to practice more IR and that this investor or crisis-induced IR affects the composition of a firm’s investor base.
Highlights
Integrated Reporting (IR) is a relatively new phenomenon in the world of corporate reporting that has gained significant momentum in the last ten years
In the presence of sustainability reporting, IR will not be associated with a more long-term investor base if the provision of the sustainability data as a separate report is sufficient to decrease information asymmetry between interested investors and corporate managers and integration provides no benefit in terms of relevance, credibility and timeliness
I find that firms that practice more IR have a more long-term investor base and that this result is driven by having more dedicated and fewer transient investors
Summary
Integrated Reporting (IR) is a relatively new phenomenon in the world of corporate reporting that has gained significant momentum in the last ten years. I collect data on all shareholder resolutions filed for US-listed companies related to social and environmental issues and find that firms for which investors file shareholder resolutions on these issues increase their IR score and that this increase in IR is associated with an increase in long-term investor base This result suggests that investor engagement is an effective mechanism of promoting IR. In the presence of sustainability reporting, IR will not be associated with a more long-term investor base if the provision of the sustainability data as a separate report is sufficient to decrease information asymmetry between interested investors and corporate managers and integration provides no benefit in terms of relevance, credibility and timeliness. Firms with better past performance have relatively more transient investors reflecting the momentum strategies employed by such investors
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