Effects of integrated reporting on the cost of capital and analysts’ forecasts errors: A study of Johannesburg Stock Exchange listed mining firms

Abstract

Orientation: Integrated reporting (IR) has gained traction over the last decade. Although IR became mandatory for all firms listed on Johannesburg Stock Exchange (JSE) in 2010, the International Integrated Reporting Council (IIRC) issued the IR framework in December 2013.

Research Purpose: The study seeks to investigate the effects of IR on the cost of equity capital and analysts’ forecast errors for the mining firms listed on JSE.

Motivation for the study: A large part of empirical evidence highlights benefits of IR; however, some studies still find no link between the quality of integrated reports and economic benefits for the reporting firm. It is against this backdrop that the study investigates effects of integrated reports on the cost of equity capital and analysts’ forecast errors.

Research approach, design and method: We use a quantitative research design to test effects of IR on the cost of equity capital and analysts’ forecast errors. We study used a panel regression to analyse relationship amongst IR, cost of equity capital and analysts’ forecast errors.

Main findings: The study found a significant negative relationship between IR scores and cost of equity and analysts’ forecast errors.

Practical or managerial application: The findings of the study could incentivise managers in other jurisdictions where IR is not mandatory. Furthermore, findings may contribute to the existing discourse on firm-based benefits related to the quality of IR.

Contribution or value addition: The study contributes to the body of knowledge with regard to possible benefits associated with compliance with the IR reporting framework.