The impact of integrated reporting on cost of capital and analysts’ forecasts: a study of Johannesburg Stock Exchange (JSE) listed mining firms.

Abstract

Integrated reporting has gained traction in the reporting space and research literature since December 2013, when the International Integrated Reporting Council issued an integrated reporting framework. However, there is a lack of evidence on the benefits associated with integrated reporting. This study examined its effect on the cost of equity capital, and analysts’ forecast errors. Empirical studies on voluntary disclosures and integrated reporting suggest a negative relationship between high quality disclosures and the cost of equity. The study employed a panel regression analysis to investigate the association between integrated reporting scores, the cost of equity capital and analysts’ forecast errors. The sample comprised mining firms listed on the Johannesburg Stock Exchange from 2013 to 2018. The results highlight an insignificant inverse relationship between integrated reporting and the cost of equity capital, and analysts’ forecast errors. Although not significant, they suggest that improvements in the quality of integrated reporting could contribute to reducing the cost of equity capital and improving financial analysts’ estimates by providing relevant information. The results shed some light on the financial benefits associated with the adoption of integrated reporting. Essentially, there is some evidence that the capital market rewards firms who produce integrated reports aligned with the International Integrated Reporting Framework.