Stock market reactions to voluntary integrated reporting

Abstract

PurposeThis study aims to examine the impact of voluntary adoption of integrated reporting on the stock prices of firms in Japan.Design/methodology/approachThe event study methodology was used to analyze the stock market reactions to voluntary integrated report (IR) publication. Abnormal returns were estimated for 1,602 observations of 490 firms publishing IRs in Japan using the market model. The t-test, the Boehmer et al., 1991 test and the generalized sign test examined the significance of the cumulative average abnormal returns (CAARs).FindingsThe study reveals that the stock market reacts positively to voluntary IR publication by firms, especially in 2019 and 2015. Additionally, it reveals a tendency for higher CAARs around IR publication dates than around corporate social responsibility report publication dates, especially in 2016 and 2015.Research limitations/implicationsThe limitations of this study include the possibility of self-selection bias and omitted variable bias.Practical implicationsThis study suggests that firms can earn higher abnormal returns in the stock market through environmental, social and governance (ESG) disclosure in IRs, corroborating the recently rising investor interest in voluntary integrated reporting in Japan.Originality/valueThis study contributes to the literature on the value relevance of voluntary adoption of integrated reporting by providing evidence of firms achieving significantly positive abnormal returns around voluntary IR publication dates. There is no published analysis on this topic using multitudes of sample firms using the event study methodology.