The International Integrated Reporting Framework: Determinants and Consequences of Voluntary Adoption

Abstract

The International Integrated Reporting Framework (IIRC Framework) is an internationally recognised guideline for the preparation of integrated reports. It frames integrated reporting (IR) as a concept about understanding and communicating organisational value creation. Despite the international interest and importance of the IIRC Framework, the IR literature is inconclusive about the determinants and consequences of voluntary IIRC Framework adoption. Accordingly, this thesis investigates the rationales behind voluntary IIRC Framework adoption and its subsequent capital market and sustain ability outcomes. The determinants results show that voluntary IIRC Framework adoption is founded on established sustainability practices. In most countries, voluntary adoption is more likely for firms with stronger environmental and social performance, a corporate social responsibility (CSR) committee and experience with the Global Reporting Initiative (GRI) guidelines. Such findings are consistent with resource dependence theory, which suggests that firms with leaders and internal mechanisms that support sustainability practices have the knowledge and resources to adopt the IIRC Framework as part of their business strategy. Further, these findings are consistent with signalling theory, which suggests firms with superior sustainability performance over their competitors use integrated reports to indicate competitive advantages and commitment to IR values for reputational and economic benefits. Unique results are obtained for Japanese firms, where there are no significant differences between IR firms and matched non-IR firms. Japanese firms may adopt the IIRC Framework for reasons not related to their observable firm characteristics. As Japanese firms are acknowledged leaders of integrated disclosure practices, Japanese firms appear to be implementing values encouraged in the IIRC Framework regardless of specifically referencing the IIRC Framework. Hence, there may be no clear differences between reports prepared according to the IIRC Framework and other forms of integrated disclosure in Japan. The consequences results found no evidence of relationships between voluntary IIRC Framework adoption and changes in the information environment, cost of equity, firm value and environmental and social performance. The results show no statistically significant changes in the investigated consequences when comparing pre-and post-IR initiation. Further, any changes experienced by IR firms are not statistically different to those experienced by non-IR firms. These results are robust to controlling for self-selection using a matched sample and treatment effect models, to assessments using level and change specifications, to a difference-in-differences design, to alternative model specifications and matched samples, and to a number of additional analyses. This thesis contributes to the IR literature by extending theoretical and empirical understanding of voluntary IR. Taken together, it provides evidence that voluntary IIRC Framework reflects a continuation of established sustainability management and reporting practices. Therefore, any changes in management and reporting practices are likely gradual rather than transformational. This finding is consistent with the non-significant results in the consequences analysis. Voluntary IIRC Framework adoption may not result in immediate improvements in sustainability performance and corporate disclosure content relative to prior years, and any changes experienced by IR firms may not be substantially different relative to any changes in non-IR firms. Overall, policy makers and report preparers need to consider whether there are substantial benefits to adoption of the IIRC Framework over engagement in other forms of integrated disclosure practices or application of alternative disclosure guidelines. The study reaffirms the need for greater support and incentives for firms with weaker sustainability practices to engage in IR, as these firms need to be involved in the IR movement for progress towards the vision of financial stability and sustainable development. Further, there is a need for accounting developments that can support integrated thinking and connecting information in order to realise substantial improvements in management and reporting practices.