Abstract:
This paper investigates the value-relevance of information disclosures,
particularly non-financial information presented in Colombo Stock Exchange
(CSE) listed company integrated reports, under a voluntary setting. To draw
meaningful comparisons, the sample size for this study contains 103
companies (cross-sector) “adopting” and “not adopting” integrated reporting
for the period 2016. The research is based on the linear regression analysis. A
modified Ohlson (1995) valuation model was used to test the value relevance
of accounting information (i.e., book value of equity and net income) and nonfinancial
information.
To quantify non-financial information a self-constructed disclosure index was
developed, and measured using the partial compliance approach. The empirical
results implicate both book value of equity and net income are positively and
significantly related to market value. However, in contrast to many findings,
voluntary non-financial information disclosures of integrated reporting show
positive yet insignificant association with market value.
On the basis of these results, it is presumed to be due in parts to the large
portion of ill-informed investors in the CSE incapable of incorporating
disclosure of non-financial information when screening firm performance.
Hence, it is recommended integrated reporting be made mandatory, on a
“comply or explain” basis to alter investor perceptions in paying more attention to the materiality of non-financials, and influencing moral corporate behaviour to create value in the short, medium and long term.
