The Relationship between Integrated Thinking and Corporate Reporting Quality in Voluntary Settings.
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In view of the increased demand for non-financial information, integrated reporting (IR) is advocated to increase transparency on corporate commitment to sustainability, improving the quality of information for providers of financial capital and promote a more cohesive and efficient approach to corporate reporting by showing the links between previously disconnected pieces of financial and sustainability information. Stimulated by the increasing number of firms adopting an IR approach, this study explores the relationship between integrated thinking (IT) – as underlying driver of IR – and corporate reporting quality (CRQ). For a sample of European firms during the years 2014-2017, this study finds that the more IT is embedded within firms’ strategies and daily processes, the higher CRQ. Interestingly, analysing the individual parts of CRQ separately, IT turns out to be only significantly related to sustainability reporting quality (SRQ), and not with financial reporting quality (FRQ). This result suggests support for the legitimacy theory, as firms with poor FRQ may use integrated reporting as a legitimation tool. Through integrating poor FRQ with high SRQ, thereby possibly deflecting investors’ and stakeholders’ perceptions of overall information quality, firms could potentially enhance corporate reputation.
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