Value relevance of accounting information under integrated reporting
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School of Business |
Master's thesis
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Date
2023
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Degree programme
Accounting
Language
en
Pages
49+13
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Abstract
Objective: This research aims to discuss the effect of the integrated report on the value relevance of accounting data, which is defined as the relation between accounting information and the stock market valuation. Though previous value relevance research has been extensive, most of them concentrate on financial information only, leaving the stock market effect of non-financial reporting less mentioned. While in practice, it’s found that investors are valuing both financial and non-financial information, and more companies are adopting Integrated Report (IR) to integrate and communicate both kinds of information to investors. However, the effect of IR on the financial market has not been holistically examined. Previous research on the stock market effect of IR has discussed only whether it would increase the value of the company, but not how investors’ valuation of accounting information would be affected by the company’s adoption of integrated reporting, which this study focuses on. Also, previous studies on IR have focused on its effects in South Africa's mandatory adoption context. While this study seeks to address the research gap by examining the impact of IR in the voluntary context in Europe. Research Hypothesis: Combining the agency theory and information processing cost theory, this study constructed the conceptual framework and proposed the following null hypothesis: The high-quality IR wouldn’t affect the value relevance of accounting information. Methodology: This study is based on a quantitative analysis of the 2248 firm-year observations from 562 companies listed in 18 main EU stock indexes from 2017 to 2020. With the Ohlson (1995) model, this thesis quantified the effect of integrated reporting on the value relevance of earnings and book value of equity information. The study also conducted industry-level and time-series analyses to get a further understanding of the IR effect. Findings: Based on the empirical research of Europe firms’ sample, the study finds that the integrated report affects the value relevance of accounting information. Specifically, the IR would improve the value relevance of earning information, while the effect on the book value information is unclear. Based on the robustness test, the study has concluded that the observed effect on value relevance is due to reduced information asymmetry and decreased information processing costs.Description
Thesis advisor
Sihvonen, JukkaKeywords
value relevance, integrated reporting, agency theory, information processing cost