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

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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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Authors and Affiliations

  1. Department of Accounting and Information Systems, Jahangirnagar University, Savar, Dhaka, 1342, Bangladesh

    Pappu Kumar Dey

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  1. Pappu Kumar Dey
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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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