Do Firms Walk the Talk: How Integrated Reporting Quality and Integrated Thinking Influence Multiple-Capital Performance

Purpose

The International Integrated Reporting Council (IIRC) claims that the adoption of integrated reporting (IR) enhances the accountability and stewardship of six forms of capital. This study examines the relationship between Integrated Reporting Quality (IRQ) and the performance of these six capitals, as defined in the International <IR> Framework (IIRF), and investigates whether integrated thinking mediates this relationship.

Design/methodology/approach

Using a sample of 548 firm-year observations listed on the Johannesburg Stock Exchange (JSE), this study employs ordinary least squares (OLS) regression techniques to estimate the research models. To address potential endogeneity in the relationship between IRQ and the performance of six types of capital, several robustness techniques are also applied.

Findings

We find that IRQ is positively associated with the performance of financial, intellectual, natural, human, and social and relationship capitals, but negatively associated with manufactured capital performance. These findings suggest that firms with higher IRQ exhibit greater accountability and stewardship across multiple forms of capital. Furthermore, our evidence suggests that integrated thinking acts as a key mechanism through which IRQ enhances the performance of financial, natural, human, and social and relationship capitals.

Originality

Our findings support the ‘real effects’ theory view of sustainability reporting, suggesting that higher quality reporting following the International <IR> Framework (IIRF) positively affects the performance of multiple capitals, with these effects mediated by integrated thinking. The results highlight the benefits of IR, offering evidence that may encourage national and supranational regulators, policymakers, and firms to adopt sustainability reporting standards issued by the International Sustainability Standards Board (ISSB), which incorporates IR principles in its framework.