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Does it pay off? Integrated reporting and cost of debt: European evidence
Author(s) -
Gerwanski Jannik
Publication year - 2020
Publication title -
corporate social responsibility and environmental management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.519
H-Index - 73
eISSN - 1535-3966
pISSN - 1535-3958
DOI - 10.1002/csr.1965
Subject(s) - cost of capital , debt , business , monetary economics , agency cost , equity (law) , sample (material) , information asymmetry , debt levels and flows , internal debt , finance , economics , microeconomics , profit (economics) , corporate governance , chemistry , shareholder , chromatography , political science , law
Although the (Integrated Reporting) Framework defines providers of financial capital as both equity and debt holders, there is a distinct lack of research on the association between IR and debt. This study is the first to examine the effect of the voluntary preparation of an integrated report on the marginal cost of public debt. From an agency theoretical standpoint, we assume that IR decreases information asymmetries, facilitates lenders' assessments of a firm's risk of default, and thus is negatively related to a firm's cost of public debt. On the basis of a European sample, consisting of 2,196 firm‐year observations between 2015 and 2017, we find that IR significantly decreases a firm's cost of debt. In subsequent moderation analyses, the results reveal that this effect (a) is stronger for firms with lower ESG performance and (b) holds only for firms operating in environmentally sensitive industries. The results are robust to a battery of statistical models. We expand on earlier empirical literature on IR and provide valuable implications for research, practice, and standard setting.