- Title
- Capital market consequences of readability and linguistic tone of integrated reports
- Creator
- Hossain, Md Amir
- Relation
- University of Newcastle Research Higher Degree Thesis
- Resource Type
- thesis
- Date
- 2022
- Description
- Research Doctorate - Doctor of Philosophy (PhD)
- Description
- Integrated reporting (hereafter, IR) is a new archetype of external reporting in management reporting practice that integrates a firm’s financial information and non-financial information in a concise and coherent format to provide a comprehensive view of the firm’s performances, risk management and prospects. The objective of this thesis is to conduct three interrelated studies in relation to integrated reporting. The first study reviews the diffusion of empirical IR research. The second study investigates the effects of the readability and tone of integrated reports on the market value of equity. The final study examines the effects of readability of integrated reports on the cost of equity. The first study applies the systematic literature review method in reviewing the effects of IR at the organisational level, determinants of IR adoption and integrated report quality (hereafter, IRQ), assurance on IR, economic consequences of IR/IRQ, and research design issues to set agendas for future research. This review covers 119 peer-reviewed IR articles, published in 36 journals between 2012 and 2021. It finds that the IR literature is dominated by organisational-level studies, while there is limited research on the economic consequences of IR/IRQ, and the findings are inconclusive thus far. This study also finds that the factors that determine IR adoption/IRQ are not yet conclusive, and there is scarce research on IR assurance. The second study examines the association of integrated report readability and tone and the market value of equity using 3,345 firm-year observations from 2011 to 2018 across 49 countries. This study finds that a more readable and more optimistic tone in integrated reports is positively associated with the market value of equity. In other words, well-written integrated reports enhance market valuation. This study also finds that the positive impact of more readable and optimistic tone in integrated reports is more pronounced for firms domiciled in stakeholder-oriented countries, an official language that is not English, and in countries with greater financial opaqueness. Further, it provides evidence that the information components of integrated report readability and tone are positively associated with market value of equity. The third study investigates the effects of the readability of integrated reports on the cost of equity, using a sample of 3,323 firm-year observations across 31 countries from 2011 to 2018. This study finds that less readable integrated reports are positively associated with the implied cost of equity capital. This finding is interpreted as equity investors price the information risk embedded in the lower readable integrated reports. This study also finds that an ambiguous tone accentuates the positive impact of less readable integrated reports on the cost of equity. Further analysis suggests that the positive association between less readable integrated reports and the cost of equity is more pronounced in firms with lower institutional investors’ ownership, lower levels of analysts’ coverage and lower corporate governance performance. Further, the positive association between less readable integrated reports and the cost of equity is more pronounced for firms domiciled in countries with stakeholder orientation, countries with an official language that is non-English, higher financial opaqueness and a weaker legal environment. Finally, this study documents that the obfuscation of information is positively associated with the cost of equity, suggesting that management strategically uses the less readable integrated reports to obfuscate poor performances. The first study contributes to the emerging IR literature by providing valuable insights for integrated report preparers, users, researchers, regulators and standard-setters. Notably, this review offers remarks and suggestions in each section for future research, which may benefit researchers from reading even a limited part of this literature review and direct IR research into the mainstream research arena. The International Integrated Reporting Council (IIRC) may also find this review useful in reconfiguring the IR framework to build trust among integrated report preparers and meet investors’ information demands, enabling IR to become a global reporting norm. The second and third studies contribute to the textual analysis of integrated financial and non-financial literature beyond traditional corporate reporting (i.e. annual report, CSR report and analysts report). Theoretically, the findings of both empirical studies provide new insights into whether firms provide value-relevant information or strategically use the syntactical (i.e. readability) and lexical (i.e. tone) features of integrated reports to obfuscate underlying poor performances and bad news. Practically, the findings of both empirical studies also offer insights for report preparers about the significance of using plain English in integrated reports to create values, given that well-written integrated reports pay well, which is reflected in the higher market valuation and lower cost of equity. Finally, this thesis informs regulators, standard-setters, policymakers, practitioners, investors, and financial analysts about the consequences of integrated report readability given that IR is an emerging policy agenda for financial stability and sustainable development around the world. Particularly, this thesis provides insights to the IIRC for enhancing the usage of plain English in integrated reports to satisfy the information demands of financial capital providers; and making IR a global reporting norm in public, private, and not-for-profit organisations around the world.
- Subject
- International Integrated Report Council (IIRC); integrated report; readability; tone; capital market; market value; cost of equity
- Identifier
- http://hdl.handle.net/1959.13/1505233
- Identifier
- uon:55649
- Rights
- Copyright 2022 Md Amir Hossain. This thesis is under embargo until 18.07.2025.
- Language
- eng
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