Empirical Studies in Financial Accounting

The Valuable Consequences of Financial Reporting Convergence towards Integrated Reporting

Document Type : Research Paper

Authors

Hassan Badri Gamchi 1
Mohammad Hassani 2
Ahmad Yaghoobnezhad 3
Ehsan Rahmaninia 4

1 Ph.d Student, Department of Accounting, Faculty of Management, North Tehran Branch, Islamic Azad University, Tehran, Iran

2 Assistant Professor in Accounting, Department of Accounting & Auditing, Faculty of Management, North Tehran Branch, Islamic Azad University, Tehran, Iran

3 Associate Professor, Department of Accounting, Faculty of Economics & Accounting, Central Tehran Branch, Islamic Azad University, Tehran, Iran

4 Assistant Professor, Department of Accounting, Faculty of Management, North Tehran Branch, Islamic Azad University, Tehran, Iran

https://doi.org/10.22054/qjma.2023.71385.2424
Abstract
This paper analyzed the consequences of financial reporting convergence towards integrated reporting in Iran's capital market focusing on agency cost and cost of equity capital. In order to measure the financial reporting convergence towards integrated reporting, a checklist has been used which designed based on the international integrated reporting framework. The agency cost measured using the efficiency criterion based on the ratio of operational expenses to operational revenues. The cost of equity capital estimated based on the expected rate of return using the capital assets pricing model. The research population includes 144 firms listed in the Tehran Securities & Exchange over March 2016 till March 2021. Multivariable regression models were used to test research hypotheses. The findings showed that increase in convergence level of firms’ financial reporting with integrated reporting framework has reduced agency cost and cost of equity capital. These findings suggested that focusing on the benefits of integrated reporting through transparency and completeness of information disclosure has weakened agency conflicts and reduced agency costs. In addition, integrated reporting has reduced the cost of capital in financing decisions due to the adoption of sustainable business model from integrated thinking and the reduction of information asymmetry due to greater transparency for more informed forecasting.

Keywords

Integrated Reporting
Financial Reporting
Agency Costs
Cost of Capital
Subjects
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Empirical Studies in Financial Accounting
Volume 19, Issue 76
Winter 2023
Pages 97-130

  • Receive Date 18 December 2022
  • Revise Date 01 March 2023
  • Accept Date 27 February 2023

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