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Integrated reporting, financial reporting quality and cost of debt

Author

Listed:
  • Mohammad Badrul Muttakin
  • Dessalegn Mihret
  • Tesfaye Taddese Lemma
  • Arifur Khan

Abstract

Purpose - Although proponents of integrated reporting (IR) advocate that this emerging practice has the potential to transform corporate reporting, the eventuation of this expectation would depend on the incentive IR provides to firms. This study aims to examine whether IR is associated with cost of debt and whether IR moderates the relationship between financial reporting quality and cost of debt. Design/methodology/approach - Based on insights drawn from information asymmetry and agency theories, the authors develop models that link IR and financial reporting quality with a firm’s cost of debt. The authors analyze 847 firm-year observations drawn from non-financial firms traded on the Johannesburg Stock Exchange, for the period between 2009 and 2015. Findings - The authors find that firms that provide integrated reports tend to have a lower cost of debt than those do not provide IR. The authors also find an inverse association between financial reporting quality and cost of debt, and that integrated reports accentuate this association. The findings suggest that the debt market perceives value in the information presented in integrated reports beyond what is furnished in financial reports. Originality/value - To the best of the authors’ knowledge, this study is the first to document evidence suggesting that the debt market perceives value in the information presented in integrated reports, beyond what is furnished in financial reports.

Suggested Citation

  • Mohammad Badrul Muttakin & Dessalegn Mihret & Tesfaye Taddese Lemma & Arifur Khan, 2020. "Integrated reporting, financial reporting quality and cost of debt," International Journal of Accounting & Information Management, Emerald Group Publishing Limited, vol. 28(3), pages 517-534, February.
    • Handle: RePEc:eme:ijaimp:ijaim-10-2019-0124
    DOI: 10.1108/IJAIM-10-2019-0124
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    Citations

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    Cited by:

    1. Vitiana L'Abate & Nicola Raimo & Benedetta Esposito & Filippo Vitolla, 2024. "Examining the impact of circular economy disclosure on the cost of debt: A signaling theory approach via social media," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 4007-4019, September.
    2. Tesfaye T. Lemma & Tendai Gwatidzo & Mthokozisi Mlilo, 2023. "Gender differences in business performance: evidence from Kenya and South Africa," Small Business Economics, Springer, vol. 60(2), pages 591-614, February.
    3. Amir Hossain & Sudipta Bose & Abul Shamsuddin, 2023. "Diffusion of integrated reporting, insights and potential avenues for future research," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(2), pages 2503-2555, June.
    4. Guo, Kun & Bian, Yuan & Zhang, Dayong & Ji, Qiang, 2024. "ESG performance and corporate external financing in China: The role of rating disagreement," Research in International Business and Finance, Elsevier, vol. 69(C).

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