Integrated reporting: Is it the last piece of the accounting disclosure puzzle?

This paper examines the association between integrated reporting (IR) disclosure quality and corporate governance mechanisms. Additionally, the impact of the accounting information provided by IR regarding the level of earnings quality and agency costs is tested. Our sample consists of 82 international firms for the 2011-2015 period. We create an integrated disclosure score index based on a checklist with weighting assigned to the respective chapters of the King III Report and King III Code (IoD, 2009a; 2009bIoD, 2009IoD, 2009a; 2009b). We observe that IR disclosure quality is positively associated with corporate governance variables. We show that a higher number of independent and non-executive board members on the nomination committee results in higher IR disclosure quality. Aligned with the earnings quality literature, we find that firms that present high-quality IR information tend to adopt milder earnings management techniques. The Jones (1991) model is used to estimate the discretionary accruals to test earnings quality. Finally, to measure agency costs, we create a variable by multiplying Tobin's Q with weighted operating cash flows (Lang et al., 1991; Healy and Palepu, 2001). We conclude that higher quality IR information decreases agency costs. A panel data regression analysis is used to empirically verify our findings. For each hypothesis, robustness tests are implemented.