Value relevance of integrated reporting: a study of the Bangladesh banking sector

Abstract

This paper aims to investigate the determinants of integrated reporting (IR) and its association with firm value and liquidity in the context of voluntary adoption. The data cover the period 2013–2018 of all banking companies of Bangladesh that construct 144 firm-year observations. An IR index is developed using international IR framework 2013, and content analysis is performed to measure IR adoption and practice. In addition to ordinary least squares regression, two-stage least squares method is used to minimize the endogeneity concerns. The result claims that banks with bigger board size, higher proportion of female and independent directors, and larger growth opportunity are more likely to adopt and practice IR. This paper documents that IR practice has a significant positive impact on the firm value, which is consistent with the theoretical prediction of corporate disclosure and firm value. Alternatively, the result does not suggest any conclusive evidence on the association between IR practice and stock liquidity. The findings of this paper could assist the regulators for preparing and issuing guidelines for this new reporting paradigm. This research, however, acknowledges the small firm-year observations and subjective judgment of self-constructed IR score.

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Acknowledgements

The author is sincerely grateful to Professor Roberto Leon-Gonzalez and Professor Nobuhiro Hosoe of the National Graduate Institute for Policy Studies (GRIPS) and the discussant and other participants at the 8th GRIPS Student Conference 2019 in Tokyo for their insightful comments and suggestions. He would like to thank Ronald Strauss (Editor in Chief) and the anonymous reviewer of the journal for their constructive comments.

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Correspondence to Pappu Kumar Dey.

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Appendix

Appendix

Integrated Reporting (IR) Index

Main content element Item
1. Organizational overview and external environment Mission, vision, culture, ethics, and values
Ownership and operating structure
Principal activities and markets
Competitive landscape and market positioning
Position within the value chain
Key quantitative information, e.g., total employees, revenue
Legitimate needs and interests of stakeholders
Macro- and micro-economic conditions
Market forces
Technological changes and its effect
Societal issues
Environmental challenges
Legislative and regulatory environment
Political environment
2. Governance Leadership structure including skills and diversity
Adoption of code of corporate governance and ethical conduct
Specific processes for strategic decisions, risk management, and addressing integrity and ethical issues
Reflection of culture, ethics, and values on the capitals
Governance practices, promoting and enabling innovation
Link of remuneration and incentives with value creation
3. Business model Key elements of business model
Inputs (stock of capitals)
Key business activities
Product and services including by-product and waste
Outcomes (internal and external; positive and negative)
Multiple business model, extent of connectivity, and synergetic benefits
4. Risk, opportunities, and internal controls Specific sources of risks and opportunities
Assessment of likelihood and effect
Specific action steps taken
Risk management report
Effectiveness of internal controls
5. Strategy and resource allocation Short-, medium-, and long-term strategic objectives and its intends
Resource allocation plans
Measurement of achievements and target outcomes
Connection between strategy and resource allocation plans and other content elements
Differentiation in terms of competitive advantage and value creation
6. Performance Quantitative indicators connecting targets, risks, and opportunities
Both positive and negative effects on capitals
Key relationships and its response
Connection between past and present performance
KPIs combining financial performance with other capitals
Significant impact of regulations on performance
7. Outlook Challenges and uncertainties in pursuing objectives and strategy
Potential respond to challenges and uncertainties
Potential implications for business and future performance
Potential external effects on the attainment of strategic objectives
Factors of capitals and its potential effects on the ability to create value
8. Basis of preparation and presentation Summary of materiality determination process
Description of reporting boundary and its determination
Frameworks and methods used to evaluate material matters
  1. Adopted from IIRC framework 2013 and ICAB IR checklist

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Dey, P.K. Value relevance of integrated reporting: a study of the Bangladesh banking sector. Int J Discl Gov 17, 195–207 (2020). https://doi.org/10.1057/s41310-020-00084-z

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Keywords

  • Bangladesh
  • Banking sector
  • Content analysis
  • Firm value
  • Integrated reporting
  • Stock liquidity