Integrated reporting (IR) aims to provide disclosures of the connectivity of non-financial and financial value creation aspects. These disclosures are defined as the disclosed connectivity of the capitals resulting from integrated thinking. This paper aims to investigate the extent of disclosed connectivity of the capitals in integrated reports and its underlying managerial discretion by drawing on economic-based theories.
Regression analyses are applied to examine the associations between economic firm-level characteristics and the extent of disclosed connectivity of the capitals. The analyses are based on a content analysis of 169 integrated reports disclosed in 2013 and 2014 by Forbes Global 2000 companies.
This paper finds high heterogeneity in the extent of disclosed connectivity of the capitals in current IR practice. This heterogeneity is related to drivers arising from economic-based theories. Firms’ non-financial and financial performance and the importance of strategic shareholders and debt providers are positively associated with the extent of disclosed connectivity of the capitals. The complexity of the business model and a highly competitive environment are negatively associated with the extent of disclosed connectivity of the capitals.
This paper extends qualitative IR studies on the disclosed connectivity of the capitals by quantitative results from a content analysis for a cross-sectional and global sample. Additionally, this study adds to prior IR literature on the drivers of the binary decision to disclose an integrated report by focusing on the extent of disclosed connectivity of the capitals.
For report preparers, users and standard setters, the results reveal that perceived cost-benefit considerations (signaling vs. direct and proprietary costs) may explain managerial discretion regarding the connectivity of the capitals within integrated reports.
This paper examines integrated reports, which are intended to inform providers of financial capital and other stakeholders about the connectivity of the six capitals of the IR framework.
This paper develops a metric disclosure measure of the extent of disclosed connectivity of the capitals. It provides initial evidence of how the IR framework’s focus on this key characteristic is realized in disclosure practice. Concerns about competitive disadvantages and preparation costs limit this key characteristic of integrated reports.
This paper forms part of a special section "The nexus between integrated thinking: integrated reporting and governance", guest edited by Nick Barter.
The authors would like to thank the guest editor, Nick Barter, and the three anonymous reviewers for their fruitful comments and recommendations. Furthermore, we gratefully acknowledge the highly valuable comments and suggestions of Marcus Bravidor, John Dumay, Jan Endrikat, James Guthrie, Axel Haller, Niclas Hellman, Peter Kajüter, Deborah Nagel, and Annett Schachtschneider. The authors also appreciate the suggestions of the participants of the 13th Workshop on European Financial Reporting in Florence 2017 as well as of the 13th and 14th Interdisciplinary Conference on Intangibles and Intellectual Capital – Value Creation, Integrated Reporting and Governance in Ancona 2017 and Munich 2018.
Grassmann, M., Fuhrmann, S. and Guenther, T.W. (2019), "Drivers of the disclosed “connectivity of the capitals”: evidence from integrated reports", Sustainability Accounting, Management and Policy Journal, Vol. 10 No. 5, pp. 877-908. https://doi.org/10.1108/SAMPJ-03-2018-0086
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