Differentiation in Reports and Analyst Forecast Accuracy: the Rise of Integrated Reporting

Abstract

In response to sustainability problems, investors and other stakeholders force companies to operate more sustainably, and therefore they demand sustainability disclosures to increase transparency regarding a company’s long-term sustainable development. As a result, companies disclose sustainability information via integrated reports (IR) as an innovative reporting process, including interconnected sustainability and financial information. Alternatively, via stand-alone non-integrated sustainability reports complementing financial reports. Analysts are information intermediaries who perceive sustainability disclosures as value-relevant because it affects financial performance. However, which sustainability reporting format is the most appropriate? This study examines the relationship between sustainability reporting quality (SRQ) and analysts’ forecast accuracy (AFA). Particularly, this study explores whether IR results in an incremental increase of AFA. To empirically test the hypotheses, an international panel data set of 1,656 companies from 51 countries, comprising 5,592 company-year observations, was compiled from 2012-2017. The results indicate that SRQ is positively related to AFA. Furthermore, this relationship between SRQ and AFA is positively moderated by IR, making the positive relationship stronger among IR companies. However, contrary to the expectations, IR results in an incremental reduction of AFA. Therefore, the study’s findings underline the concerns surrounding the superiority of IR because the potential benefits are not yet manifested.