Does corporate governance affect the quality of integrated reporting?

Integrated reporting (IR), is fast emerging both as a tool to help firms understand their value creation process and to communicate effectively with external stakeholders. By promoting integrated thinking in organizations and strong collaboration among functions to improve the firm’s value creation in the short, medium and long term, IR has developed into an enhanced model of corporate reporting. Since IR affects the whole company, its strategy, performance and connected stakeholders, it is important to understand how the governance practices determine the reporting of an organisation’s ability to create value.

Nuwan Gunarathne, a PhD candidate at the Department of Business Strategy and Innovation, has teamed up with colleagues, Thilini Cooray and Samanthi Senaratne to examine how corporate governance mechanisms affect the quality of IR.

In addressing this objective, the researchers first developed an index to assess the quality of integrated reports and then content analyzed 132 integrated reports of Sri Lankan public listed companies selected over a three-year period.

The results show that there is limited support from the corporate governance system for providing quality information to stakeholders on the value creation process through IR, except for board size and the availability of a separate risk management committee. This is due to the heavy emphasis of corporate governance requirements and the resulting mechanisms of Sri Lankan companies on mandatory corporate reporting requirements compared to a voluntary reporting model such as IR.

Since many corporate governance aspects are meant to fulfill mandatory reporting requirements, the results imply that the directors have given limited attention to providing quality information through voluntary disclosure practices such as IR, although they use resources to prepare integrated reports.

Please click here to read the full “Does corporate governance affect the quality of integrated reporting” article published in Sustainability,  written by Thilini Cooray, Nuwan Gunarathne and Samanthi Senaratne.