Integrated Reporting in South Africa: Balancing Legitimacy and Financial Performance

What is it about?

This paper explores integrated reporting in South Africa, focusing on whether companies that produce high-quality integrated reports also show better financial performance. Using data from Ernst & Young rankings of Johannesburg Stock Exchange-listed companies from 2011 to 2020, the study investigates the relationship between integrated reporting quality and financial metrics like liquidity, solvency, profitability, and market performance. Surprisingly, the findings reveal no direct link between integrated reporting quality and financial performance. Instead, it suggests that larger companies tend to produce better-quality integrated reports, hinting that such reports may serve more to maintain organizational legitimacy and manage stakeholder impressions than to provide direct financial benefits.

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Photo by Markus Spiske on Unsplash

Photo by Markus Spiske on Unsplash

Why is it important?

This research is important because it addresses the uncertainty surrounding the value of integrated reporting in South Africa, where it is uniquely adopted on an 'apply and explain' basis through the King Code for Corporate Governance (King IV). The study investigates whether organizations producing higher-quality integrated reports achieve better financial performance or if the primary value lies in enhancing organizational legitimacy and managing stakeholder impressions. The findings, revealing no direct relationship between integrated reporting quality and financial performance, challenge assumptions about the financial benefits of such reporting. Instead, the research suggests that larger companies tend to produce better-quality integrated reports, potentially indicating a focus on maintaining organizational legitimacy and managing stakeholder perceptions. Understanding this dynamic has implications for businesses, regulators, and stakeholders, emphasizing the need for a nuanced approach to integrated reporting that considers both financial performance and the broader organizational context. It contributes valuable insights to the ongoing dialogue on the role and impact of integrated reporting in corporate governance and transparency.