Article2021

Integrated reporting quality and cost of debt financing

Nicola Raimo · Alessandra Caragnano · Massimo Mariani · Filippo Vitolla

51 citations0/0 files storedJournal of Applied Accounting Research

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Corporate Social Responsibility Reporting Auditing, Earnings Management, Governance Financial Reporting and XBRL

Abstract

Purpose In recent years, policymakers have increasingly pushed firms to disclose non-financial information. In Europe, integrated reporting (IR) is an increasingly adopted tool to fully comply with the requirements of the Directive 2014/95/EU. This study aims to examine the financial benefits of IR quality and specifically the effect on the cost of debt. Design/methodology/approach A manual content analysis is performed to measure the quality of the information contained in integrated reports. A panel regression model is used to test the effect of the IR quality on the cost of debt on a sample of 399 observations (a balanced panel of 133 European listed firms for the period 2017–2019). Findings Results demonstrate a negative relationship between IR quality and the cost of debt, showing that firms that provide higher quality integrated reports benefit from access to third party financial resources at better conditions. Research limitations/implications The results of this study offer important implications for managers and policymakers. The capacity of IR quality to allow a cost of debt reduction should push managers to a greater propensity towards transparency and the dissemination of high quality integrated reports. In addition, in light of the benefits connected to the IR quality, policymakers should push towards the adoption of IR as a solution to fulfil the regulatory obligations deriving from Directive 2014/95/EU. Practical implications Results show the goodness of IR as an ideal solution to fulfil the obligations imposed by Directive 2014/95/EU. The important financial benefits associated with IR quality make the high quality integrated report an ideal tool capable of fulfilling regulatory obligations and at the same time guaranteeing a reduction in the cost of debt. Originality/value To the best of the authors’ knowledge, this is the first work that analyses the relationship between IR quality and cost of debt.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 2001Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature 1991Disclosure, Liquidity, and the Cost of Capital 1983Discretionary disclosure 2004Board characteristics, accounting report integrity, and the cost of debt 2010The role of information and financial reporting in corporate governance and debt contracting 2007Corporate Misreporting and Bank Loan Contracting 1998Corporate disclosure quality and the cost of debt.

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