TY - JOUR

T1 - Does it pay off? Integrated reporting and cost of debt

T2 - European evidence

AU - Gerwanski, Jannik

PY - 2020/9/1

Y1 - 2020/9/1

N2 - Although the <IR> (Integrated Reporting) Framework defines providers of financial capital as both equity and debt holders, there is a distinct lack of research on the association between IR and debt. This study is the first to examine the effect of the voluntary preparation of an integrated report on the marginal cost of public debt. From an agency theoretical standpoint, we assume that IR decreases information asymmetries, facilitates lenders' assessments of a firm's risk of default, and thus is negatively related to a firm's cost of public debt. On the basis of a European sample, consisting of 2,196 firm-year observations between 2015 and 2017, we find that IR significantly decreases a firm's cost of debt. In subsequent moderation analyses, the results reveal that this effect (a) is stronger for firms with lower ESG performance and (b) holds only for firms operating in environmentally sensitive industries. The results are robust to a battery of statistical models. We expand on earlier empirical literature on IR and provide valuable implications for research, practice, and standard setting.

AB - Although the <IR> (Integrated Reporting) Framework defines providers of financial capital as both equity and debt holders, there is a distinct lack of research on the association between IR and debt. This study is the first to examine the effect of the voluntary preparation of an integrated report on the marginal cost of public debt. From an agency theoretical standpoint, we assume that IR decreases information asymmetries, facilitates lenders' assessments of a firm's risk of default, and thus is negatively related to a firm's cost of public debt. On the basis of a European sample, consisting of 2,196 firm-year observations between 2015 and 2017, we find that IR significantly decreases a firm's cost of debt. In subsequent moderation analyses, the results reveal that this effect (a) is stronger for firms with lower ESG performance and (b) holds only for firms operating in environmentally sensitive industries. The results are robust to a battery of statistical models. We expand on earlier empirical literature on IR and provide valuable implications for research, practice, and standard setting.

KW - Management studies

KW - corporate social responsibility

KW - cost of debt

KW - risk of default

KW - integrated reporting

KW - environmental performance

KW - sustainability performance

UR - http://www.scopus.com/inward/record.url?scp=85085695899&partnerID=8YFLogxK

U2 - 10.1002/csr.1965

DO - 10.1002/csr.1965

M3 - Journal articles

AN - SCOPUS:85085695899

VL - 27

SP - 2299

EP - 2319

JO - Corporate Social Responsibility and Environmental Management

JF - Corporate Social Responsibility and Environmental Management

SN - 1535-3958

IS - 5

ER -