Firm-specific Information and Proprietary Costs: Evidence from Mandated Integrated Reports

Our study addresses whether integrated report quality, IRQ, is negatively associated with stock price synchronicity, an inverse measure of firm-specific information, and the extent to which the relation between IRQ and synchronicity is attenuated by proprietary costs. In integrated reports, a firm integrates financial and non-financial information to explain how it uses financial, manufactured, intellectual, human, social and relationship, and natural capitals to create value. Financial statements and sustainability information are key to integrated reports. Using a sample of firms from South Africa, which mandates integrated reporting, we find IRQ is significantly negatively related to synchronicity. Examination of 12 subcomponents of IRQ based on the Integrated Reporting Framework, reveals that 11 are significantly negatively associated with synchronicity. Further, the negative relation between synchronicity and IRQ is significantly less negative for firms with higher proprietary costs, particularly costs associated with growth opportunities and intangible assets. Our study may be informative to the International Sustainability Standards Board as it considers the role of the Integrated Reporting Framework in developing sustainability standards. Our evidence suggests that disclosures in higher quality integrated reports reveal more firm-specific information that investors incorporate into stock prices, but such disclosures are constrained by concerns about revealing proprietary information.