Impact of integrated reporting on financial performance.

Abstract

Companies the world over have implemented the new phenomenon of Integrated Reporting. This followed global initiatives introduced by the International Integrated Reporting Council (IIRC), and in South Africa by the Integrated Reporting Council of South Africa (IRCSA). In South Africa, it is mandatory for all listed companies on the Johannesburg Stock Exchange to produce and publish annual Integrated Reports. This also aligns with the recommendations of the King IV Code of Corporate Governance. The major weakness of Integrated Reporting is that it is an expensive and time-consuming process, given that numerous resources go into its development and one report can exceed a hundred pages. However, its strength rests in the provision of a wholistic view of the company to its stakeholders. In view of stakeholder requirements and benefits, the question that remains unanswered relates to whether there are financial benefits for companies that employ Integrated Reporting. Such an understanding is crucial as such information may inform companies considering its adoption. This study sought to determine whether Integrated Reporting had any impact on the financial performance of companies in South Africa generally, and, in particular the Top 40 Johannesburg Stock Exchange listed companies. This study on Integrated Reporting was underpinned by the stakeholder theory. Company stakeholders are the primary audience of the Integrated Report. By adopting Integrated Reporting, a company becomes more mindful of its stakeholders as they influence the decision-making processes. Given the focus of the study on Integrated Reporting, the theory enables establishing whether or not Integrated Reporting reflects, offers and delivers all the financial and non-financial information required to stakeholders. The study was located within a positivist paradigm, given that there was a distance between the researcher and the researched. The study commenced with hypotheses and employed statistical measurements for data analysis and presentation. Using a quantitative approach, data were drawn from the Johannesburg Stock Exchange. In selecting the Top 40 listed companies based on market capitalization, the study

employed statistical analysis to investigate the impact of Integrated Reporting on financial performance. On the over all, this study found that companies did not benefit significantly from Integrated Reporting. The study found that Integrated Reporting has no impact on financial performance as there was no relationship between return on assets (ROA) and Economic Social Governance (ESG) score. It also emerged that there was no impact on financial performance as there was no relationship between Economic Value Added (EVA), Tobin Q and ESG. This suggests that companies may not be utilizing fully the synergies that come with the adoption of this reporting phenomenon. It may also be that Integrated Reporting is not assisting companies in generating any long-term value.