Integrated Reporting and Information Asymmetry – Exploring Disclosure Quantity, Quality and Connectivity of the Capitals of Forbes Global 2000 Firms

Integrated reporting (IR) aims to enhance the information environment for providers of financial capital by connecting financial and non-financial disclosures. This paper investigates whether the disclosure quantity, quality, and connectivity of the six capitals within an integrated report decrease information asymmetry, as measured by the bid-ask spread. We use a unique set of hand-collected data derived from a content analysis of all 169 integrated reports disclosed by the 2,000 largest listed companies worldwide in 2013 and 2014. First, we provide evidence that a higher share of disclosures on human, intellectual, and manufactured capital in relation to financial capital disclosures reduces information asymmetry. This implies that disclosures on the capitals closely linked to the value creation process are beneficial for investors. Second, we find that the connectivity of the capitals further decreases information asymmetry, which encourages the approach of connected disclosures on the value creation process. Third, we show that only higher quality of financial capital disclosures further decreases information asymmetry. This may imply a lack of credibility of numerical and future-oriented non-financial disclosures. Overall, our study concludes that the current efforts of companies' disclosures within integrated reports improve the information environment for investors and, thus, decrease information asymmetry