The Reduction of Information Risk: Do Integrated Thinking and Stakeholder Engagement reduce Information Asymmetry?

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This study investigates whether integrated thinking and stakeholder engagement reduce information asymmetry. Stakeholder pressures drive firms to become more responsible and accountable regarding their sustainable activities. As the necessary stakeholder engagement pressures firms to disclose non-financial information, its connection to financial information is often distorted in separate sustainability and financial reports. The integrated report, based on integrated thinking, is the proposed solution. It is argued that the implementation of integrated thinking and legitimate stakeholder engagement should lead to high-quality financial and non-financial disclosure capable of reducing information asymmetry effectively. Using a panel data set of 1491 listed firms with 7455 firm-year observations during the period 2013–2017, the results indicate no significant relationship between integrated thinking and information asymmetry. This implies that integrated thinking is ineffective in reducing information asymmetry. Furthermore, stakeholder engagement increases information asymmetry, implying a legitimizing role for stakeholder engagement in sustainability activities. The study adds to the literature by exploring stakeholder and legitimacy theory perspectives in integrated thinking and reporting, examining stakeholder engagement as a legitimation tool and finding whether integrated thinking does not reduce information asymmetry. The study provides a better understanding of the consequences of integrated thinking and stakeholder engagement based on empirical evidence. Keywords: Integrated thinking; integrated reporting; stakeholder engagement; information asymmetry; sustainability; corporate social responsibility.
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