Elise Soerger Zaro
Doctorate – Cost of capital and voluntary disclosure of Integrated Reporting
Advisor: Prof. Dr. Fernando Dal-Ri Murcia
Comission: Profs. Drs. Luiz Nelson de Carvalho, Suliani Rover and Marco Fasan
Class: 217, FEA-5
Integrated Reporting <IR> is an initiative that encourages companies to analyze their business model in a holistic way. This process includes active consideration of financial and non-financial perspectives to understand all the capital generated, maintained and destroyed by the company throughout time. It allows companies to understand their activities, considering all factors used or affected and understanding the whole context of the organization, which leads to the embedment of the Integrated Thinking concept. According to the system theory, the integrated analysis of financial and non-financial aspects – as proposed by <IR> – can lead to different conclusions than analyzing them separately, due to the connections and interrelations between them. Applying the concept of Integrated Thinking may result in two main advantages for the company: 1) improvement in the management of the company, especially in what concerns non-financial capitals; and 2) decrease in information asymmetry. Therefore, based on the Voluntary Disclosure Theory, these two factors may result in economic benefits for the organization. Thus, in this research we investigate how the cost of equity and debt relates to integrated reporting disclosure and what the impact of institutional factors is on this relationship. We analyzed a global sample of 25,311 firm-year observations, from 2010 to 2017, employing a method that considers two dimensions: 1) Treatment: Integrated Reporting voluntary adopters compared to a control group selected by a PSM procedure; and 2) Time: both groups are compared in the period before and after the adoption. Our results indicate that the integrated reporting disclosure is negatively related to cost of equity. The results are robust after controlling for several firm-level and country-level factors, and the industry. Further analyses showed that this effect is concentrated in environments with high enforcement and revealed that companies in a Shareholder Oriented environment perceived a greater reduction in the cost of equity, compared to companies in a Stakeholder Oriented environment. Our evidence also showed that debtholders respond differently to the integrated reporting disclosure than equityholders. Despite the difference in cost of equity for companies adopting integrated reporting, we found no evidence of a relation between cost of debt and <IR> disclosure, not even when we analyzed subsamples by institutional factors. We conducted a further investigation on the effect of assurance in the relation between cost of debt and <IR> disclosure and we found that companies in a High Enforcement environment that assure their CSR information showed a lower cost of debt. This study contributes to the literature of integrated reporting showing the how it relates with cost of equity and debt, considering a global sample of voluntary adopters. We analyzed the impact of institutional factors in this relationship and we employed a robust method of analysis that differentiates it from other studies.
*Abstract provided by the author