interrelation of integrated reporting with information
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University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018).
Interrelation of Integrated Reporting with information
asymmetry
Name: Jacfar Yusuf
Student number: 11419237
Thesis supervisor: Dhr. dr. A. Sikalidis,
Date: June 25, 2018
Word count: 14505, 0
MSc Accountancy & Control, specialization Accountancy
Faculty of Economics and Business, University of Amsterdam
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 2
Statement of Originality
This document is written by student Jacfar Yusuf who declares to take full responsibility for
the contents of this document.
I declare that the text and the work presented in this document is original and that no sources
other than those mentioned in the text and its references have been used in creating it.
The Faculty of Economics and Business is responsible solely for the supervision of completion
of the work, not for the contents.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 3
Abstract
The period prior to the introduction of the so called ‘Integrated Reporting Framework’ by the
IIRC in 2013 the traditional reports were failing to capture the economic consequence of
corporate innovations in a timely fashion. The framework was presented as a response to the
huge demand of the investors for a change in the reporting regulation. The IIRC (2013)
mentioned that the IR framework aims to improve the quality of information, promote a more
cohesive and efficient approach of reporting, enhance accountability and stewardship and
stimulate integrated thinking, decision-making and actions. Nonetheless, does this change
faithfully represents the improvement of the economic consequences in the reports? Therefore,
the interrelation of Integrated Reporting with information asymmetry is examined during this
study. For the study two models are tested in a regression to see whether Integrated Reporting
is related with information asymmetry. The two models are the stock liquidity and abnormal
return model. Both models are examining if Integrated Reporting leads to respectively lower
stock liquidity or abnormal returns. The input that represents the framework in the models are
the ESG-scores of 503 companies with the sample period from 2010 till 2016. The final sample
consists of 3,155 firm year observations. Firstly, I find that Integrated Reporting lowers the
bid-ask spread of the firms that implemented the framework. Subsequently, no empirical
evidence is found that the Integrated Reporting framework lowers the company’s abnormal
returns. With the reliability issues in mind, I conclude based on this study that the framework
of the IIRC has a negative interrelation with information asymmetry. This thesis contributes to
the empirical world by expanding and widening the existing empirical literature about
Integrated Reporting. By looking at the association of IR and information asymmetry of the
Northern-American companies clarifying the relation and holding the criticisms of the
framework in mind.
Key words: Integrated Reporting Framework, IIRC, information asymmetry, ESG-scores, bid-
ask spread, abnormal returns.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 4
Contents
Abstract .........................................................................................................................................................3
List of figures and tables .............................................................................................................................6
1 Introduction .........................................................................................................................................7
2 Literature review and hypothesis development ........................................................................... 12
2.1 Integrated Reporting ................................................................................................................ 12
2.1.1 IIRC Framework .............................................................................................................. 13
2.1.2 Guiding principles ............................................................................................................ 14
2.1.3 Content elements ............................................................................................................. 15
2.2 Support for IR .......................................................................................................................... 16
2.3 Criticism on IR ......................................................................................................................... 17
2.3.1 Denial of the criticism ..................................................................................................... 19
2.3.2 Criticism versus the supporting literature..................................................................... 20
2.4 Theoretical framework ............................................................................................................ 20
2.4.1 Agency theory ................................................................................................................... 20
2.4.2 Adverse selection ............................................................................................................. 21
2.4.3 The efficient market hypothesis..................................................................................... 22
2.4.4 Value relevance theory .................................................................................................... 22
2.5 Hypothesis development ......................................................................................................... 24
2.5.1 The bid and ask-spread ................................................................................................... 24
2.5.2 Abnormal returns ............................................................................................................. 25
2.6 Paragraph summary.................................................................................................................. 26
3 Data and research design ................................................................................................................ 27
3.1 Sample selection ....................................................................................................................... 27
3.2 Data sources .............................................................................................................................. 29
3.3 Stock liquidity model ............................................................................................................... 29
3.4 Control variables ...................................................................................................................... 30
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 5
3.5 Abnormal returns model ......................................................................................................... 31
3.6 Testing........................................................................................................................................ 31
3.7 Framework ................................................................................................................................ 32
4 Empirical results............................................................................................................................... 33
4.1 Descriptive statistics................................................................................................................. 33
4.1.1 Normality test ................................................................................................................... 34
4.1.2 Pearson correlation .......................................................................................................... 35
4.1.3 Homoscedasticity ............................................................................................................. 37
4.2 Regression analysis ................................................................................................................... 37
5 Conclusions....................................................................................................................................... 41
5.1 Summary .................................................................................................................................... 41
5.2 Conclusions ............................................................................................................................... 41
5.3 Limitations ................................................................................................................................. 42
5.4 Further research ........................................................................................................................ 43
References .................................................................................................................................................. 44
Appendices................................................................................................................................................. 50
Appendix 1: OLS Assumptions ......................................................................................................... 50
Appendix 2: Libby boxes .................................................................................................................... 51
Appendix 3: Test for normality .......................................................................................................... 52
Appendix 4: Regression ....................................................................................................................... 55
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 6
List of figures and tables
Figures
Figure 1 ESG-framework
Figure 2 Research Framework
Tables
Table 1 Final Sample
Table 2 Number of observations per year
Table 3 Descriptive Statistics of sample companies with ESG-scores before winsorizing
Table 4 Pearson correlations.
Table 5 Spearman correlations
Table 6 Regression Analysis of SPREAD
Table 7 Regression Analysis of ABNORMAL_RETURN
Table 8 Hypotheses outcomes of the regression
Table 9 Skewness/Kurtosis tests for Normality
Table 10 Shapiro-Wilk W test for Normality
Table 11 Descriptive Statistics of sample after winsorizing
Table 12 Histogram & Box plot SPREAD of the transformation due to winsorizing
Table 13 Histogram & Box plot ABNORMAL_RETURN of the transformation due to
winsorizing
Table 14 Breusch-Pagan test for the SPREAD model
Table 15 Breusch-Pagan test for the ABNORMAL_RETURN model
Table 16 Variance Inflation Factor (VIF)
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 7
1 Introduction
Behind every company there is a unique story, including a specific business strategy. A big
difficulty is the understandability of this strategy by the stakeholders. The story must be
developed in an understandable and unambiguous manner to let stakeholders comprehend the
story effectively (Druckman, 2014). There is an observed trend that annual reports soon would
become less relevant/significant for shareholders (FRC, 2011). Companies are reacting by
providing more non-financial information, but this does not seem to happen in an
understandable and unambiguous manner. The objective to communicate the operations of the
business in an integrated and sustainable manner is not met. So, there was a huge demand for
a change in the reporting regulation, IIRC countered this by introducing a new form corporate
reporting the ‘Integrated Reporting Framework’ (IIRC, 2013).
The overall purpose of traditional reporting is to provide assurance of the current and
forthcoming performances of an entity, but nevertheless these traditional reporting methods are
failing to clarify the economic consequence of corporate innovations in a timely fashion (Healy
and Palepu, 2001). In this the IR framework can be of use. Druckman (2014) mentioned that
the hardest and crucial part is to create insight in how the company's strategy and business
model creates value over time for the entity. The so called ‘Integrated Reporting’ complements
to the reporting environment of entities and creates a determination of internally performance
and attracts external financial capital for investment.
On September 1st in South Africa the King Code of Governance Principles for South
Africa (‘King III’) was released. A significant recommendation of the code King III is that
entities should not only adopt and implement sustainability reporting, but they should go a step
further. The King Committee Chairman Mervyn E, King says “Sustainability is, however about
more than just reporting on sustainability. It is vital that companies focus on integrated
performance.” The King III introduces the concept of integrated sustainability performance and
integrated reports into South African Corporate Governance principles. In addition, the
Johannesburg Stock Exchange Limited (‘JSE’) made the code King III mandatory by
incorporating into its listings requirements. This leads to that South-African based companies
are required to publish an integrated report, if not , they need to explain why they not choose
to meet the requirements of the code KING III (Jones, 2015).
In the big world of corporate reporting, Integrated Reporting is a relative new
phenomenon that has been on the rise during the last decade (Serafeim, 2015). Currently
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 8
Integrated Reporting is implemented on a mandatory basis in South Africa, and research
showed evidence of momentum towards Integrated Reporting in other huge economies around
the world. Integrated Reporting relies on a sequence of underlying activities, IR is more than
just a corporate report (Robertson, 2015). The International Integrated Reporting Council
(IIRC) has a long-term vision embedded within the business practice by formulating the
framework Integrated Reporting (IR). IR framework aims to improve the quality of
information, promote a more cohesive and efficient approach of reporting, enhance
accountability and stewardship and stimulate integrated thinking, decision-making and actions
(IIRC, 2013). There is an endless development going on to perfect Integrated Reporting.
Frequently there are reports with miscellaneous results published about the strengths and
weaknesses of IR. There are e.g. researches which heavy criticize the shareholders-oriented
view of Integrated Reporting e.g., in the paper of Flower (2015). The criticism led to the
introduction of the Integrated Reporting framework in 2013 by the IIRC, with the purpose to
stimulate companies to further develop reporting and to design a better fit of the framework to
their organization.
The report of IIRC (2014) contains a recommendation prepared by a panel with
members of the six globally largest accounting firms (BDO, EY, Deloitte, KPMG, PWC and
Grant Thornton). The panel recommends firms to encourage internally innovations interrelated
with corporate reporting (IR) and initiatives for the long-term investors.
For the execution of my master thesis I am prepared with experience of the accounting
world and knowledge gained during my MSc study, therefore I use my capabilities to bring
insight in how Integrated Reporting is viewed by the market. The main objective of my master
thesis is to bring insight in and explain the relation of Integrated Reporting and information
asymmetry. To answer the research question: how is Integrated Reporting interrelated with
information asymmetry?, is the reaction examined of the bid and ask-spread and abnormal
stock returns by the implementation of Integrated Reporting within an organization.
This research starts firstly with describing the background literature, for instance what
the Integrated Reporting framework means and how it is operationalized. This is essential to
understand how the framework perhaps is affected by presence of information asymmetry.
Furthermore, I described the theories that reflect the underlying effects and structure of
information asymmetry, which are necessary to support the underlying conception of the
research hypotheses.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 9
For the dependent variable information asymmetry is translated through two proxies.
Stock liquidity is the first proxies defined based on prior studies. For stock liquidity is expected
that firms with Integrated Reporting will have a lower bid-ask spread. The first hypothesis is
formulated as follows: Organizations with a high level of alignment with the Integrated
Reporting framework results in lowering the bid and ask-spread. To test this hypothesis the
stock liquidity model is used, which will bring insight in the variance of the bid-ask spread.
Based on prior studies is abnormal returns defined as a proxies of information
asymmetry. For firms with Integrated Reporting is a lower abnormal returns expected. The
second hypothesis is formulated as follows: Organizations with a high level of alignment with
the Integrated Reporting framework results in lowering the abnormal returns. To test this
hypothesis the abnormal return model is used, which includes the abnormal returns.
Integrated Reporting, the independent variable of the research is operationalized
through ESG-scores, which represent the performance of the capitals environmental, social and
governance. 503 Northern-American listed firms are selected including their ESG-scores, in
order to function as the sample of this research. These ESG-scores are from the sampling period
of 2010 till 2016 retrieved from ASSET4 database available in DataStream.
To map the endogeneity for this research, I have determined based on prior literature
the following control variables FIRM_SIZE, VOLUME, ROA, LEVERAGE, PROFIT and
PRICE_VOL. The summed up control variables are used for the stock liquidity and abnormal
return model.
The first regression tests the effect of Integrated Reporting on the variance of the bid-
ask spread. The significant p-value of the model indicates a negative relationship of Integrated
Reporting with the bid-ask spread. Furthermore, the first hypothesis is accepted and the null
hypothesis rejected.
There is no significant evidence found as result of the regression of the abnormal return
model. For the abnormal return model is a positive relationship found of abnormal returns with
Integrated Reporting, however there is no support found for rejection of the null hypothesis.
In order to answer the research question, it is essential to determine the reliability of the
two research models. Both models have an Adjusted R-square that are interpreted as very low,
which don’t explain much of the variance. Altogether is hard to pick which model is more
reliable than the other, by a research opinion both models would be seen as not reliable.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 10
Based on prior research it is expected that the implementation of the Integrated
Reporting of the IIRC lowers the information asymmetry. For the proxy bid-ask spread of
information asymmetry is significant results found. For the second proxy of information
asymmetry abnormal return is no significant evidence found. This means that investors are not
able to better estimate the abnormal returns when a firm uses the Integrated Reporting
framework. The effect might be clarified by other factors, than were included in the scope of
the research. Based on the stock liquidity model is suggested that the Integrated Reporting
framework has a negative relationship with information asymmetry.
The first contribution of this thesis happens in an empirical fashion by looking at the
association of Integrated Reporting framework with the stock liquidity and abnormal returns.
This thesis covers the fact that not much empirical research was done about the effect
framework itself. Currently known studies look into the quality of the framework. The found
results indicates that the integration of integrated thinking in the organization suggest a lower
information asymmetry. Due to reliability issues of the models is hard to say that is exactly the
case.
This study looks only at the Northern-American setting excluding the European firms.
This indicates a limitation that is hard to generalize on a general scale. For further research, I
suggest to research a more global setting, by also considering the European companies and
their relationship with the different variables.
Over the years numerous academics have criticized the framework. This leads to the
objective of this thesis to contribute to the discussion in an empirical manner. The found
empirical results indicate that Integrated Reporting reduces the information asymmetry.
Integrated thinking is a phenomenon that every firm should implement in their business. This
supports the investors in order to make better choices regarding investment choices based on
the information incorporated in the financial reports. Subsequently, the IASB or other
regulators could follow the reporting situation in South-Africa where Integrated Reporting is
mandatory for South-African firms, which this research could be a forerunner in were the
development is going.
In paragraph 2 the literature according to the research of the association of Integrated
Reporting with information asymmetry. The background of framework is described and
relevant theory in order to explain information asymmetry. Paragraph 3 displays the sample
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 11
selection and the research models of the study. Paragraph 4 present the empirical results of the
study and while paragraph 5 contains the conclusions and limitations of the research.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 12
2 Literature review and hypothesis development
Integrated Reporting has the purpose to inform and give insight to the stakeholders how the
firm is creating value over time for the entity. The provided information in the financial
statement to the market and how the market perceives the information is very vague. For
instance, when a company gives full insight on how it creates value over time for its own
organization, this will lead to better decision-making for the investors to make a choice
regarding the stock returns.
The World Bank and IMF are advocating for greater focus on facets as risk and future
development, which can all be found on the webpage of the IIRC (2017), this follows from the
present existing information gaps within corporate reports. Furthermore IIRC created
Integrated Reporting to enhance company’s accountability, stewardship and trust in order to
improve information stream and transparency of the organization. IIRC (IR, 2017) says that
when a company’s incentives are influencing negative short-term behavior, capital markets are
weak and poor leads to incorrect assessment of the company’s value. Integrated Reporting
increases the decision usefulness on efficient capital markets.
The increase of the decision usefulness for investors is not the only goal of the
implementation of Integrated Reporting. Another goal of Integrated Reporting is to manage the
information gap between the companies and their shareholders by reducing this. This
information gap is heavily associated to the main subject of this research information
asymmetry. I have chosen and constrained myself to the following four theories:
Agency theory
Adverse selection
The efficient market hypothesis
Value relevance theory
I suppose that these theories are the most relevant theories regarding my topic. Those theories
will support the understanding of the interrelation of Integrated Reporting with information
asymmetry.
Integrated Reporting
The following subparagraphs are dedicated to the background information of the Integrated
Reporting framework of the IIRC.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 13
In the past decade there has been an increase in the demand of the stakeholder for more
non-financial data in the financial reports. Preferred is a combination of financial and non-
financial information in the accounting figures. This combination will give a global picture of
the entire organization including the long-term effect of the decision making on the business
(Jensen & Berg, 2012). Van Zijl el al. (2017) mentioned that the IIRC (2013) described that an
integrated report is not just an aggregated report consisting of traditional corporate reports and
sustainability reports. The goal of IIRC is to bring insight on how an entity creates sustainable
value for the investors by incorporating financial and non-financial performance in one report
(IIRC, 2013; de Villiers et al., 2014; King, 2016). The IIRC formulates Integrated Reporting
as follows: “A process that is based around integrated thinking to stimulate entities to release
integrated reports about the value creation process over time” (IIRC, 2013, page. 34). The IIRC
(2013, p. 34) defines Integrated thinking as follows: “The consideration by several financial
and operational units and the capital is been used or affected. Integrated thinking takes in
account the value creation over the short, medium and long-term of the decision making and
actions effect.” Integrated Reporting shifted the emphasis on the value creation process from
looking on a traditional way at the financial reports towards a more forward-looking approach.
The IIRC is demanding an explanation from the reporting entity on how it used their financial,
manufactured, human, intellectual, natural, social and relationship capital in order to create
value over time for its different stakeholders (IIRC, 2013). This process should be in line with
the business model, strategy and the key risks faced by an entity (Stubbs and Higgins, 2014;
Raemaekers et al., 2016).
2.1.1 IIRC Framework
In 2013, the IIRC released the Integrated Reporting framework for the general public. The
framework doesn’t contain hard requirements in the form of e.g. key performance indicators,
it is mainly based around principles. The IIRC requires managerial involvement while
preparing an integrated report. In this section, I will describing the guiding principles and the
content elements. Therefore, follows an explanation of the seven principles and eight elements
that are key for the understandability of the framework and organizations their operations. The
guiding principles and content elements are significant and highlight the value creation for the
stakeholders.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 14
2.1.2 Guiding principles
The long-term and strategic focus is incorporated in the first principle of the Integrated
Reporting framework, which would benefit the public by encouraging firms to incorporate
more future information in their financial reports. The principle is state as follows: a) “An
integrated report should provide insight into the organization’s strategy, and how it relates to
the organization’s ability to create value in the short, medium and long term and to its use of
and effects on the capitals,” (IIRC, 2013, p. 16).
Connectivity of information is incorporated in the second principle which is related to
the term ‘integrated thinking’. The principle is stated as follows: b) “An integrated report
should show a holistic picture of the combination, interrelatedness and dependencies between
the factors that affect the organization’s ability to create value over time,” (IIRC, 2013, p. 16).
The voice of the stakeholders concerning the relationship is incorporated in the third
principle. Disclosing information according to the framework strengthens the trust of the
stakeholders in the company. Integrated Reporting increases the transparency and
accountability of the company. The principle is stated as follows: c)“An integrated report
should provide insight into the nature and quality of the organization’s relationships with its
key stakeholders, including how and to what extent the organization understands, takes into
account and responds to their legitimate needs and interests,” (IIRC, 2013, p. 17).
Materiality is the key point where the fourth principle focuses on. Materiality is a key
decision-making element for the investors. Materiality is incorporated in integrated reports to
reach a higher level of information quality. According to Mio (2016) investors should be an
important consideration within the integrated reports. The principle is stated as follows: d) “An
integrated report should disclose information about matters that substantively affect the
organization’s ability to create value over the short, medium and long term,” (IIRC, 2013, p.
18).
Integrated reports should be formulated concisely, this facet is incorporated in the fifth
principle. This must leave out all less relevant information that the firm would document in
their reports which could hide fundamental and important information about the strategies,
governance and firm performance. So all the information must contain added value in the
integrated reports. The principle is stated as follows: e) “An integrated report includes
sufficient context to understand the organization’s strategy, governance, performance and
prospects without being burdened with less relevant information,” (IIRC, 2013, p. 21).
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 15
For organizations it’s crucial to have a good designed internal control and governance
structure, which will in turn enhance the reliability and completeness of the produced reports.
This is incorporated in the sixth principle which is stated as follows: f) “An integrated report
should include all material matters, both positive and negative, in a balanced way and without
material error,” (IIRC, 2013, p. 21).
Consistency and comparability are incorporated in the seventh principle. To enhance
the consistency and comparability concepts, integrated reports should stay consistent from one
period in comparison to the earlier periods unless changes are needed. The principle is stated
as follows: g) “The information in an integrated report should be presented: a) On a basis that
is consistent over time b) In a way that enables comparison with other organizations to the
extent it is material to the organization’s own ability to create value over time,” (IIRC, 2013,
p. 23).
2.1.3 Content elements
There are eight content elements that are included in the framework of the IIRC, which firms
that produce integrated reports should answer. The first content element is about the
organizations identifying and incorporating the core mission and vision in the integrated report
and also the effects of the external environment on the organizations culture, ethics, value and
operating structure. The content element is stated as follows: a) “What does the organization
do and what are the circumstances under which it operates?” (IIRC, 2013, p. 24).
Governance is incorporated in the second content element of the framework. This
element is about how the governance creates value towards the stakeholders. The content
element is stated as follows: b) “How does the organization’s governance structure support its
ability to create value in the short, medium and long term?” (IIRC, 2013, p. 25).
The organizations business model is the base for the third content element. This element
is focused on the value creation over time by the business activities. The content element is
stated as follows: c) “What is the organization’s business model?” (IIRC, 2013, p. 25).
The key risks and opportunities play a central role in the fourth content element.
Organizations should identify and incorporate the effect of the value creation of the key risks
and opportunities in the integrated report. The content element is stated as follows: d) “What
are the specific risks and opportunities that affect the organization’s ability to create value
over the short, medium and long term, and how is the organization dealing with them?” (IIRC,
2013, p. 27).
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 16
The strategy and resource allocation are playing a central role in the fifth content
element. Integrated reports should include how companies are implementing and achieving
strategic objectives over time and how they separate themselves from their competition. The
content element is stated as follows: e) “Where does the organization want to go and how does
it intend to get there?” (IIRC, 2013, p. 27).
Performance is a core component within the sixth content element. E.g. qualitative and
quantitative information about the performance (targets, risks and opportunities). The content
element is stated as follows: f) “To what extent has the organization achieved its strategic
objectives for the period and what are its outcomes in terms of effects on the capitals?” (IIRC,
2013, p. 28).
Outlook is a core topic within the seventh content element. What are actions/reactions
of the organizations to/towards challenges and uncertainties that they face. This gives the
stakeholders more insight and like this, the company becomes more foreseeable. The content
element is stated as follows: g) “What challenges and uncertainties is the organization likely
to encounter in pursuing its strategy, and what are the potential implications for its business
model and future performance?” (IIRC, 2013, p. 28).
Basis of preparation and presentation are playing an central role in the eight content
element. The content element is state as followed: h) “How does the organization determine
what matters to include in the integrated report and how are such matters quantified or
evaluated?” (IIRC, 2013, p. 29).
Support for IR
The pervious subparagraphs clarified the underlying thoughts of the objective of Integrated
Reporting. It is generally known that the implementation of framwork is required for the South
African and Brazilian companies (Robertson, 2015). This subparagraph describes why
organizations should embrace and implement the Integrated Reporting framework based on
prior literature.
Owen (2013) stated that old fashioned financial reporting is focused on the transactional
and operational aspect of business. Traditional financial reporting is missing the long-term
strategic and prospective analysis facets of reporting. This kind of reporting leads to a narrower
external financial reporting which explains only how the organization is creating short-term
value. Bringing insight into the long-term value creation of a business is captured by the
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 17
Integrated Reporting framework. Owen mentioned that Integrated Reporting gives a wealthier
picture of an organization. This is achieved by referring and accessing broader extended
sources than the current model. This includes making use of qualitative and quantitative data
as well.
Eccles and Saltzman (2011) find that the impact of Integrated Reporting leads to three
main benefits. According to Eccles and Saltzman are businesses benefiting of Integrated
Reporting by making better internal decisions, having better relationship with stakeholders and
a lower reputational damage. By incorporating qualitative and quantitative data, this will lead
to better risk management according to the research of Eccles and Armbrester (2011). By
incorporating this type data external advantages will arise as keeping the stakeholders satisfied
by providing nonfinancial information which give a complete, accurate and timely picture of
the organization. Providing both data leads to the third benefit which is minimized regulatory
risk. So an organization must be prepared and organized to meet the requirements of new
worldwide introduced regulations on the stock market, e.g. showing the relationship among the
organization qualitative and quantitative data.
The studies of Zhou et al. (2017) and Eccles and Krzus (2010) state that a lower cost of
capital will benefit the firm. Lower cost of capital arises from an increased reputation, a more
transparent organization and information that fulfills the desire of the shareholders. All those
elements can be traced back to the implementation of the Integrated Reporting framework,
which does not only disclose financial information but also environmental, social and
governance (ESG) related information (Eccles & Krzus, 2010). One finding of Zhou et al.
(2017) is that companies with a higher degree of implementation of the integrated framework
experience a lower cost of capital. This is primarily due to the creation of lower information
risk for the shareholders. Another finding of Zhou et al. (2017) is that the framework is relevant
to the capital markets. There is a negative relation found between ‘connectivity’, ‘newness’
and ‘forecast errors’. This shows that new information incorporated within integrated reports
advances the accurateness of forecasts. There is little evidence found that height of alignment
and earnings forecasts are negatively related.
Criticism on IR
At the moment Integrated Reporting is in an advanced stage of knowledge. A number of
researchers expressed criticism on the framework of the IIRC. An often cited paper is the
Flower (2015) paper. Flower’s deeply criticized the incorporation of the stakeholders within
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 18
the framework. Financial capital providers and funders are the targeted audience of Integrated
Reporting. One of the objectives of the framework is to bring insight on how firms create value
over time for their stakeholders. Despite this, it is one of the objective of the Integrated
Reporting framework that is not interpreted in the best interest of the stakeholders according
to Flower (2015). According to IIRC (2013) this is only the case when it is material in towards
creating value for its own organization.
Another criticism on Integrated Reporting is how human capital is processed in the
integrated reports. The IIRC describes human capital as follows: “Human capital as the
people’s their competencies, capabilities and experience, and their motivations to innovate and
there:
alignment with and support for an organization’s governance framework, risk
management approach, and ethical values ,
ability to understand, develop and implement an organization’s strategy,
loyalties and motivations for improving processes, goods and services, including their
ability to lead, manage and collaborate” (IIRC, 2013, p. 12).
The people that represent the human capital of a firm, as determined by the IIRC lack intrinsic
value according to Flower. The contribution of the people forms the core element in the
determination of the value of the human capital. This determination leads to omitting the people
who have not contributed to the value of the business. The losses that people make are caused
by e.g. pollution, is not part of the framework. This shows the narrow scope of the framework.
The same applies for the nature capital, this capital looks into the extent of how it impacts the
production process and how it omits the effect on the environment. The IIRC aware of the fact
that the several capitals are not fully integrated in the process and takes its stewarding role.
Currently, it is predominantly that information over the several capitals are disclosed when
regulation is in play. In the framework of IIRC it is stated that companies should accept their
stewardship responsibilities to meet the expectations of their stakeholders. Flower (2015) is
again pointing out the limited incorporation of the stakeholders in the framework. Again the
value of stakeholders, society and environment is only taken into account when it is material
to its own business processes. The opinion of Flower is embroidered on the work of Brown &
Dillard. Brown & Dillard (2014) are emphasizing the missing underlying ideas of economics
of the stakeholders, society and environment.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 19
IIRC (2013) mentions when financial capital is fully utilized, society and environment
will profit from it. Flower (2015) mentions that the perception of the stakeholders is not taken
into account, while benefits are calculated in advantage of the firms and the costs of the
stakeholders as a disadvantage. An example that Flower (2015) gives is, when a firms succeeds
in lowering the employee wages this becomes a benefit for the business, but misses the fact
that the loss is taken by the employees and this is not incorporated. Furthermore Thomson
(2015) votes for emphasizing the underlying ideas of the sustainability difficulties to create a
sustainable case. This includes a wider emphasis on more elements than traditional reports had
and a shift in focus towards the stakeholders.
2.3.1 Denial of the criticism
The critical paper of Flower (2015) got challenged by Mio (2016) in her book “Integrated
Reporting A New Accounting Disclosure”. The core and essential principle ‘materiality’ in the
IR framework is heavily criticized by the paper of Flower (2015). Materiality in the framework
includes only the investors. IIRC (2013, p. 17) state in the framework that satisfying all
stakeholders is not part of the objectives. IIRC (2013) define materiality as follows: “an
element is material when it could substantively influence the opinion of users of the financial
statements (investors) with regard to the value over the short, medium and long term”.
Mio (2016) says the framework of IIRC should be viewed through a ‘dynamic’
viewpoint rather than a ‘static’ one.
How an issue is impacting the decision making of the investors is included under the
static perspective. The actions of the stakeholders and the reactions of the firms are a missing
component in the static perspective. Most researcher use the static perspective for their
researches.
The dynamic perspective considers a broader scope than the static perspective. It
includes the actions of the stakeholders and the reactions of the firms. The dynamic perspective
makes sure that the stakeholders have more input and control over what companies disclose or
leave out the integrated reports. The stakeholders must have an dynamic attitude towards this
aspect.
There are still questions about were the targeted audience in the framework of IIRC is
in place. It might be the case that the choices could be an effect of political actions. The
framework gives the freedom to interpret the concept value creation by your own perception.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 20
2.3.2 Criticism versus the supporting literature
Over the last decade Integrated Reporting gained its momentum in the scientific world (Mio,
2016). Currently investors are prioritized in the information that is been served. Nonetheless
Mio (2016) argue this is not the case. The IR framework considers investors as the targeted
audience, however investors are left out in the determination of the integrated reports.
Nonetheless Mio (2016) votes for a more dynamic approach. My attitude towards this subject
is that these drivers are inadequate. The IIRC should review the given comments and perhaps
make changes to the framework.
According to Thomson (2015) it is possible for the IIRC to create a sustainable case.
In order to realize a sustainable case the IIRC must move their situation from a static towards
an more dynamic attitude. An example is the earlier mentioned case that all the stakeholders
are affected by the choices/actions made by a specific firm, which only would benefits the
investors.
From my point of view, I don’t think corporate reporting is all about the accounting
numbers. It is mainly about the accounting techniques that arrange the numbers on the balance
sheet in the annual report. The Integrated Reporting framework can be the solution in creating
a more sustainable case, which would create value on the short- and long-term for the firm and
their stakeholders.
Theoretical framework
2.4.1 Agency theory
One of the theories that explains the cause of information asymmetry is the agency theory.
Jensen and Meckling (1976, p.308) define an agency relationship as a contract between a
principal and an agent, e.g. a company and their employees. Within this relationship there is
some decision making delegated to the agent. The principle must create an optimal setting with
the proper incentives for the agent to make right decisions that favor the entity best as possible.
For example, the principle which incurs monitoring costs will influence the decision making
of the agent in a positive manner. In other situations principal pays the agent in form of a
bonding cost or incurring compensation costs to incentivize the agent to take decisions, that
would not affect the principal in a negative manner. The information asymmetry arises from
the aspect of when there are no costs occurred within the agency relationship and there is no
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 21
assurance that the agent will make the ideal decisions for the principal when there are zero cost
involved (Jensen and Meckling, 1976).
Separation of ownership and control creates well-known agency problems within
companies (Badertscher et al, 2013). Badertscher et al (2013) says that managers, ‘insiders’,
are having more information than e.g. stakeholders, ‘outsiders’. So, the outsiders are
demanding corporate reports that contain very detailed firm specific knowledge to make useful
decisions regarding their maximization of their stock return. As I earlier mentioned the IIRC
(2017) stated that they reduce this information asymmetry by narrowing the information gap
with their Integrated Reporting. This research is about whether this is significant.
Another agency problem is the ‘lemons’ problem. The ‘lemon’ problem addressed by
Akerlof (1970) who has a different opinion on the information asymmetry between companies
and their stakeholders. This problem regards the information asymmetry between the buyer
and seller of the value of an investment or product. Healy and Palepu (2001) described the core
problem, this is when the investors of an enterprise cannot distinguish the bad type companies
that pretend that their ideas as good form the good type. Again capital markets enhance the
‘lemons’ problem by overprizing bad ideas and underpricing good ideas. This is a very
important subject because one of the goals of Integrated Reporting is explaining how it creates
value over time for an entity, which again resolves the ‘lemons’ problem.
2.4.2 Adverse selection
Available information on the market is very crucial for the trading choices investors make. Due
to the difference in how well the investors are informed, differences in bidding and asking price
are caused. For this effect Stoll (2000) found evidence in his research. Stoll (2000, p. 1482) has
elaborated on the researches of scholars Copeland and Galai (1983), Glosten and Milgrom
(1985), and Kyle (1985). Stoll (2000, p. 1482) included in his paper two branches often not
distinguished. The work of Copeland and Galai (1983) is foundation for the first branch. The
first branch is about the difference between value of the trading options and the posted quotes.
There is a time lag between posting and removing quotes. When new information is published
and a quote is placed, then the investor or dealer would lose. The second branch is more
prevalent with superior information, which suggests the presence of information asymmetry.
There is a risk that adverse selection would incur that a person with superior information would
take the bid or ask price. The informed traders would buy at the ask price when they know its
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 22
value is a higher price and sell at the bid-price when its value is a lower price (Stoll, 2000, p.
1482).
Stoll (2000) mentioned that information asymmetry can be measured by the bid-ask
price spread and is seen as a proxy information asymmetry. Inventory holding, order processing
and asymmetric information costs are facets of bid-ask spread. The asymmetric information
costs aspect within the bid-ask price spread reflects and measures how well the investors with
private information can influence the difference within the bid and ask spread.
2.4.3 The efficient market hypothesis
The ownership in form of stock capital and the allocation is a significant aspect on the capital
market. The valuation of stock capital must happen in an efficient way, in order to provide the
right signal towards the capital market to create better decision usefulness for the investors for
better investment selections. So, it is very fundamental to incorporate all available information
in the market prices. There are lots of papers available about efficient markets. The most cited
and quoted paper is the Fama (1970) paper. Fama’s paper reviewed all the existing literature
on the efficient markets model. The review is done by comparing the adjustment of the security
prices at three levels of efficient markets, weak form, semi-strong form and strong form. These
three level stand for how well markets are incorporating newer information into the prices. The
strong-form is that some investors or parties are the only with the superior information like the
case in a monopoly. These could be parties like specialists or insiders of an organization. This
seems to be an extreme case, but this efficiency markets model is used as a benchmark to judge
different market efficiency cases. Under the semi-strong form it is expected that the market has
taken all noticeable and accessible information such as announcements and annual reports into
account. Markets that are covered by the ‘weak-form’, only take historical firm existing
information (e.g. returns) into account in their prices.
For the capital markets it matters how much private information companies
communicated to the markets, in order to the market to be efficient. So, for this research I will
be examining the effect of integrating reporting on the information subset within the company’s
stock prices.
2.4.4 Value relevance theory
Only in South Africa, application of the framework Integrated Reporting is mandatory. Where
standard corporate reports only report financial information to the investors, Integrated
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 23
Reporting adds non-financial information to the information flow, which aids for the investors
to better assess the value of the organization.
Prior research showed a positive association between standard sustainability reports and
the firm value of an enterprise. These standard sustainability reports contain mainly
nonfinancial, social, ecological and economic content (Berthelot et al., 2012). Berthelot et al.
(2012) concludes afterwards by better understanding of value relevance study that the
stakeholders can better estimate future cash flows of enterprises, all due to the relevance of the
incorporated information in the sustainability reports. Berthelot et al. (2012) researched
Canadian enterprises that published sustainability reports on the Toronto Stock Exchange's
S&P/TSX Composite Index. However, there is very little research’s available and done about
the added value to the firm value by IR. Mervelskemper and Streit (2017) stated in their paper
that prior research (Malik, 2015) investigated the value relevance of sustainability reports.
Other researchers (Orlitzky et al., 2003; Margolis et al., 2009; Fulton et al., 2012) found a
positive but small relationship between value creation and sustainability reports.
Mervelskemper and Streit find an association between value relevance and entity reporting on
the corporate governance, environmental and social pillars (sustainability reports). In the paper
about value relevance Barth et al (2001) mentioned that accounting amount contains value
relevance if it is cohesive with equity market values. This means that all the relevant
information to the investors is incorporated in the stock prices.
Authors Holthausen and Watts (2001) classify the relevance of important papers in
three categories according the relevance theory. The three categories are:
Relative association studies (Category 1)
Incremental association studies (Category 2)
Marginal information content studies (Category 3)
The first category compares the relative association of the stock value and the change with the
underlying measures (e.g. IFRS with US GAAP). The second category is about the explanatory
power of the accounting numbers on the stock prices or future returns. Scholar Venkatachalam
(1996) created a trustworthy estimation model by looking into accounting figures that could
predict the values. The third category looks into the add value of accounting figures towards
available information. All together the value relevance theory can be conceived broadly. This
theory is basically investigating the effects of managerial choices, underlying measures or
accounting figures on the value of the prices or returns.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 24
During this research I am testing the level of information asymmetry related to the choice of
releasing an Integrated Reporting or holding on to the current corporate reporting method.
Hypothesis development
The research of scholars Lee and Yeo (2016) is predominantly the reason that information
asymmetry is linked to Integrated Reporting. Businesses that are in line with the framework
are more likely to have a higher percentage of external investors and a higher firm valuation
according to lee and Yeo (2016). The scholars mention that the framework reduces the
information asymmetry between the internal and external parties. Stubbs and Higgins (2014)
brought insight in how the level of provided information is related with how firms use the
Integrated Reporting framework. The implementation of the framework did not resulted in to
a reduction in information asymmetry according to the evidence found by Stubbs and Higgins
(2014). Firms are not obliged to provide information towards investors regarding their
investment decision making. Overall is the subject investors in the framework misunderstand.
To make information asymmetry explicit, I formulated proxies based on prior literature.
2.5.1 The bid and ask-spread
The researchers Bischof and Daske (2013) found that many oversight watchdogs as IIRC use
stock liquidity as an element within the disclosure regulation design. Many scholars delivered
researches with results that strength the association quantity of disclosures and the stock
liquidity (Healy et al, 1999), (Leuz & Verrecchia, 2000), (Welker, 1995). The bid and ask-
spread is a stand-in of the firm’s stock market liquidity which Bischof and Daske (2013) used.
On the market there are two types of traders: definable liquidity and informed traders
(Glosten, Milgrom, 1985). Informed traders have the privilege that they have private
information that is not incorporated in the market security prices. Liquidity traders trade on
other information apart from having hidden information. When liquidity and informed traders
are involved in the same transactions, the informed traders are ending up with a loss, this is
reflected in the bid and ask-spread (Glosten, Milgrom, 1985). The bid and ask-spread is
basically the difference between the price of the traders are willing to buy or sell from or to the
experts (Amihud & Mendelson, 1986). This is in line what Copeland and Galai (1983), and
Glosten and Milgrom (1985) indicated that the association of a higher level of information
asymmetry leads to a wider bid and ask-spread for the traders. As earlier mention in paragraph
2.4.2 is the bid and ask-spread functioning as a proxy for information asymmetry.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 25
Bischof and Daske (2013) and Roulstone (2003) let the bid and ask-spread function as
a stand-in of the firm’s stock market liquidity. The only proxy for market liquidity that is use
is bid and ask-spread within theoretical and empirical literature according to Callahan et al.
(1997). Guenster el al. (2011) and Jo and Harjoto (2011) found that CSR is positive related
with the enterprise value. For this research I will add the enterprise value in the bid and ask-
spread which would help me to better assess and distinguish larger and smaller firms.
Based on the existing papers, I formed a hypothesis for testing the bid and ask-spread
as the stand-in for information asymmetry. See here below hypothesis 1 of this research.
Hypothesis 1: Organizations with a high level of alignment with the Integrated
Reporting framework results in lowering the bid and ask-spread.
If the hypothesis is supported, than can be suggested that Integrated Reporting has a negative
effect on the bid and ask-spread. Therefore when the hypothesis gets rejected, that indicates
that Integrated Reporting has a minimal effect on the information asymmetry.
2.5.2 Abnormal returns
Furthermore during this research I investigate whether Integrated Reporting impacts the
decision making of the investors regarding to the stock returns. Past researches sees abnormal
returns as an stand-in of information asymmetry. The study of Nichols and Wahlen (2004) is
assisting me to assess whether Integrated Reporting positively affects abnormal stock returns.
Nichols and Wahlen (2004) looked into how the changes of abnormal annual stock returns is
affecting the change in yearly earnings including abnormally yearly stock returns. An
integrated report contains in comparisons with traditional reports more non-financials
information about the business. The non-financial information is incorporated within the
accounting numbers in the financial statements. This leads for the investors to better decisions
making about their investments. This is earlier described in subparagraph 2.4.3. As earlier
mentioned for the capital markets it matters how much private information companies
communicated to let the market be efficient. All the future expectation of the direction is
incorporated with in the current stock price. So, this mean that the stock price would be based
on more superior information and secondly leads this a lower abnormal stock returns e.g., when
an organization has implemented the Integrated Reporting framework. (Nichols & Wahlen,
2004). The research of Nichols and Wahlen (2004) is the reason to add abnormal stock-returns
to determine the association of Integrated Reporting with information asymmetry.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 26
Nichols & Wahlen (2004) continued were the prior study of Ball & Brown (1968)
stopped. My calculation will be identical in comparison to Nichols and Wahlen (2004). For
this research there will be a limit, this is further explained in the next chapter. Nichols &
Wahlen used the formula: total business stock-return – (minus) day return market index, to
calculate the abnormal stock returns.
Based on the described papers I formed a hypothesis for testing the abnormal stock-
returns as the stand-in to examine and making the interrelation explicit between Integrated
Reporting and information asymmetry. See here below hypothesis 2 of this research.
Hypothesis 2: Organizations with a high level of alignment with the Integrated
Reporting framework results in lowering the abnormal returns.
If the hypothesis is supported, than can be suggested that Integrated Reporting is negatively
related with abnormal stock-returns. It would lead to better estimation of the abnormal stock-
returns which removes the uncertainty of the stock-returns. I would assume this based on the
existing theory and research. Therefore when the hypothesis gets rejected, that indicates that
Integrated Reporting has a minimal effect on the information asymmetry.
Paragraph summary
Integrated Reporting ensures that the stakeholders receive a broad perceptive of the whole
organization of a company. By giving insight in the financial as the non-financial data and
having an efficient market potential investors get the opportunity to better assess the future
cash flow to make better investment decisions. The effect of minimized information asymmetry
must be traced back in the bid and ask-spread and abnormal stock-returns. This study is
bringing if Integrated Reporting is negatively related with the stock liquidity (information
asymmetry), which is translated in to two proxies bid and ask-spread and abnormal stock-
returns.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 27
3 Data and research design
This paragraph contains how the sample is selected and which databases or data sources the
data is retrieved from, all to explain the interrelation of Integrated Reporting and information
asymmetry. Additionally, in this paragraph are the stock liquidity and abnormal returns model
explained in detail. Furthermore, Libby boxes are added that represent the framework of the
research that shows how the examining process of the interrelation. This framework is the
backbone of this study. The models are based and elaborate on existing and prior studies.
Sample selection
Since 2010, South-African corporations are compulsory to use Integrated Reporting as their
reporting standard and was acknowledged in more and more countries worldwide (Jones,
2015). Due to the rise of IR in 2010, I choose to start the sample period of the data from 2010.
Eccles and Krzus (2010) their criticism in their One report: Integrated Reporting for a
sustainable strategy shifted to how IR should be implemented within companies. The report of
Eccles and Krzus (2010) made The IIRC presented a framework in 2013 as a response to this
riticism. For this study I choose to run the sample till the latest accessible year 2016.
The scope for this study comprehends only North-American based corporations. This
limitation within the research is due to impossibility to gathering the necessary data of
European companies, even with the granted access in DataStream. This forces me to focus only
on the North-American companies for this research and due the limited timespan is it not
possible for me to gather the European data by hand.
The earlier formulated research question is being answered and the interrelation is
examined by using a sample of 600 North-American with the biggest market capitalization,
that represents the entire population in the US. These 600 companies are retrieved out the
DataStream. In the sample are e.g. Apple Inc, Amazon.com Inc and Alphabet Inc inlcuded.
Due the research of Eccles and Krzus, that showed similarities between Integrated Reporting
and CSR, I used ESG-scores out the ASSET4 ESG database as a proxy for Integrated
Reporting. The way financial, environmental, social and governance information are
incorporated in the financial reports is very similar in both type of reporting. The ESG-scores
stands for the overall performance subdivided in four pillars economic, environmental, social
and corporate governance (see figure 1).
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 28
Figure 1 ESG-framework
For the research I took the assumption that in 2010 the firms start adopting Integrated
Reporting, makes all the adopting firm years equally. This could be a limitation of the study. I
sort the available companies on market capitalization, and retrieved ESG-scores of the 600
companies with the biggest market capitalization including Apple, Alphabet/Google and
Amazon. Subsequently dropped 97 enterprises from my sample as result of missing the
matching data. Altogether my final sample contains 503 enterprises started from 2010 till 2016.
The final sample represents the independent variable of the research and is used for the two
models of the research explained in subparagraphs 3.3.1 and 3.3.2. See table 1 the final sampled
that is expressed in observations years.
Table 1 Final Sample
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 29
Data sources
To collect the necessary data of the dependent variables I used first the database The Center
for Research in Security Prices (CRSP) in WDRS. I retrieved the stock prices, bid & ask prices,
distributed dividends and the S&P 500 returns to compute the abnormal returns and spread of
the stocks. I used DataStream to retrieve the required data to compute the control variables:
firm size, volume, ROA, leverage, profit and price volatility.
Stock liquidity model
In most researches (Glosten & Milgrom, 1985; Copeland & Galai, 1983) is found an effect that
a higher level of information asymmetry leads to a wider bid and ask-spread for the investors.
An assumption is that the bid and ask-spread remains persistent throughout the examined
period. This bid and ask-spread represents the grade of information asymmetry, inventory cost
element and order processing costs. Due to the interaction of information asymmetry, inventory
cost element and order processing costs can the bid and ask-spread experience abnormalities.
Here below is the equation of the ordinary least regression (OLS) shown (including the control
variables) to test hypothesis 1.
Model 1
SPREAD = βo + β1*ESG_SCORES + β2*FIRM_SIZE + β3*VOLUME + β6*ROA +
β8*LEVERAGE + β9*PROFIT +β10*PRICE_VOL + ɛi,t
The ESG-scores are calculated by taking the average of the performance scores of the
283 key performance indicators. To calculate the yearly bid-ask spread, I first calculated the
daily bid-ask spread by taking end of the day daily spread according to Ayaraman (2008).
Secondly, I use Harris (1994) method to transform the end daily spread to an average yearly
spread.
SPREAD =
According to prior literature I forecast and expect an effect of higher alignment with IR
in lowering the SPREAD for investors, that is coherent with hypothesis 1. This indicates a
positive relationship of Integrated Reporting with information asymmetry.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 30
Control variables
To map the endogeneity for this research, I have determined based on prior literature the
following control variables FIRM_SIZE, VOLUME, ROA, LEVERAGE, PROFIT and
PRICE_VOL. This determination is in line with the researches of Frias-Aceituno et al. (2013,
2014), Bischof & Daske (2013), Healy, el al. (1999), Sierra et al. (2013), Roulstone (2003) and
Leuz (2003).
Total assets represents the component FIRM_SIZE of a specific company and by taking
the log the FIRM_SIZE is determine. The component firm size is functioning as a proxy for
the total available information and its effect on the market’s reaction during the event period.
Larger amount of information results into lower adverse selection. Therefore, I forecast and
expect that FIRM_SIZE has a negative association with SPREAD.
By taking the shares traded annually and dividing it by the total shares outstanding the
control variable VOLUME is determined. I used log transformation to nuance the spread of the
variable. Traders who received more opportunities are more likely to succeed in managing their
stocks inventory and recouping their losses form the knowledgeable traders from companies
with a higher trading volume ratio. Subsequently is expected that VOLUME has a negative
correlation with SPREAD.
The profitability of companies is measured by the return on assets (ROA). A positively
influencing effect of the profitability of companies on the level of disclosed information is
found by Frias-Aceituno et al. (2014). Expected is that ROA has a negative correlation with
SPREAD.
By dividing the total liabilities by the total equity you determine the LEVERAGE of a
specific firm. According to Sierra et al. (2013) a higher LEVERAGE ratio is related toward
higher probability of occurrence of an economic disaster. Altogether is expected is that
LEVERAGE has a negative correlation with SPREAD.
To calculate the PROFIT for the share capital the net income is dividend by the share
capital. Frias-Aceituno et al. (2014) found that more resources are invested into the
development of maturing Integrated Reporting by companies that are more profitable.
Altogether is expected that this leads to lesser information asymmetry.
To determine the PRICE_VOL are the annually daily returns used and showed as the
standard deviation. Holding firm stocks on a short-term is affected by more uncertainties due
the higher volatility in the firm’s stock prices. This lead to an increase in the bid & ask
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 31
SPREAD, so the traders can protect themselves against the volatility. Subsequently, Jegadeesh
et al (1993) and Stoll (1978) reported that a positive correlation of PRICE_VOL with SPREAD
can be expected.
The ε stands for the residual term. There are no implications made towards the residual
term.
Abnormal returns model
As in the literature review in section 2 mentioned and discussed are the abnormal returns
functioning as a good representation of the information asymmetry of a firm. Here below is the
equation of the ordinary least regression (OLS) shown (including the control variables) to test
hypothesis 2.
Model 2
ABNORMAL_RETURN = βo + β1*ESG_SCORES + β2*FIRM_SIZE + β3*VOLUME +
β6*ROA + β8*LEVERAGE + β9*PROFIT +β10*PRICE_VOL + ɛi,t
The ABNORMAL_RETURN represents the abnormal returns which is the second
dependent variable. The ABNORMAL_RETURN are computed by first determining the stock
returns and subtracted by the returns on the S&P 500.
Stock return =
ABNORMAL_RETURN =
According to prior literature I forecast and expect an effect of higher alignment with IR
in lowering the ABNORMAL_RETURN for investors, that is coherent with hypothesis 1. This
indicates a positive relationship of Integrated Reporting with information asymmetry. Keeping
efficient markets in mind for investors the user of integrated reports is expected that they can
make better forecasts about the stocks returns of a firm. The same control variables discussed
in 3.4 for SPREAD are also applicable for ABNORMAL_RETURN.
Testing
The proxy of IR ESG_SCORES are tested if there is any effect on the SPREAD and
ABNORMAL_RETURN. Initially I will start with ordinary least squares regression if there is
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 32
any statistically significant effect of X on Y. Subsequently a multivariate analysis is executed
to look for validation of the two models in accordance with univariate analysis. Furthermore
difference in difference test is used to examine if there is any impact by the Integrated
Reporting framework on the SPREAD and CAR. Last but not least robustness tests are
executed. Subsequently are from these tests the inferences of the hypotheses and the answer of
the thesis question derived. The thesis question is : “how is Integrated Reporting interrelated
with information asymmetry”.
Framework
The regression model of the research is testing the effect of ESG-scores on the bid-ask spread
and abnormal return. To see and prove if the test are actually testing what it claims and purports
to measure, is all captured by the construct validity.
For the independent variable Integrated Reporting are the average ESG-scores used as
a proxy. This is very directly designed which may can be a limitation of the research.
Stock liquidity is translated into SPREAD that is computed by taking average
differences of the daily ask and bid prices to determine the yearly average spread. The yearly
abnormal returns are computed by taking the average of the subtracted stock day returns from
the market day return which are in this case the returns on the S&P 500. The Libby boxes of
the research are shown in figure 2 in the appendix that shows and paints in an arranged manner
how the interrelation of Integrated Reporting with information asymmetry is going to be tested.
The two upper boxes reflect the concepts and are translated in operational measures in the
lower boxes. In the separate boxes are the control variables added. For the research question
there are two hypotheses hypothesized that the framework is positive interrelated with
information asymmetry. This means that is expected that Integrated Reporting positively
influences the outcome of the SPREAD and ABNORMAL_RETURN.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
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4 Empirical results
This paragraph contains the empirical results of the executed tests and overall analyses of the
research hypotheses executed during the research. To test the normality of the research sample
the descriptive statistics and the correlation of the research variables are shown and explained.
Furthermore, is a regression executed and analyzed for the two research models.
Descriptive statistics
In table 2 are the number of observations per year displayed. The 3,155 observations are
representative of the data set originated from 503 North-American companies. The
observations are approximately equally distributed over the sample years from 2010 to 2016.
Table 2 Number of observations per year
For the descriptive statistics are the number of observations, means, standard
deviations, minimum and maximum presented in table 3 for the independent, dependent and
control variables. The total of 3,155 observation firm years represent the research sample. The
independent variable ESG-scores has a mean of 59.18693. The dependent variables bid-ask
spread and abnormal returns have respectively a mean of 0.0237083 and 0.003058. For the
control variable firm size is a mean displayed of 16.65642. For volume is a mean displayed of
16.65642. The mean of profit is 0.0397719. The mean of ROA is 0.0621177. For leverage is a
mean displayed of 0.4875014. The mean of price volatility is 24.35635.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 34
Table 3 Descriptive Statistics of sample companies with ESG-scores before winsorizing
Notes: This table shows for the variables the descriptive statistics before winsorization total observations (N), mean, standard deviations, min,
max and median over the sample period 2010-2016.
4.1.1 Normality test
For the variables bid-ask spread and abnormal return are their normality tests executed to
determine if the distribution of the data sample is normally distributed. The skewness and
kurtosis tests and Shapiro-Wilk test are both significant 0.000, additional test values under 0.05
indicate a non-normal distribution for the two variables. The box plots of the variables
displayed in table 12 and 13 in the appendix illustrates that the distribution is heavily effected
by outliers in the sample. An observation that strongly differs from the other observations in
the sample are described as an outlier (Field, 2013). One of the methods to eliminate outliers
is winsorization. With winsorization the observation in the lowest and highest percentile
respectively 1st and 100th are equalize to the 2nd and 99th percentile in the observation sample
by using the mean of bid-ask spread and abnormal return as a reference point. The means of
the variables bid-ask spread and abnormal return after winsorizing are much better shaped,
despite the variable can be susceptible to reliability and inaccuracy errors, I assume that the
variable are normally distributed. The winsorized values of the variables are presented in table
11 disclosed in the appendix. Furthermore, are in the appendix table 12 and 13 presented, that
shows the transformation of the distribution by displaying the histograms and box plots of the
variables bid-ask spread and abnormal return before and after winsorization.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 35
4.1.2 Pearson correlation
This section is dedicated to the analysis of the correlation between the research variables. In
table 4 are the Pearson correlations of the different variables displayed in order to look for any
mutual correlations and to exclude any multicollinearity issues within the model. The
correlation values show the extent to which two variables are coherent and if there is a statistical
relationship/effect. Pearson correlation p-values of less than 0.05 and 0.01 are being labeled as
significant. The negative correlation between ESG_SCORE and SPREAD shown in table 4 is
significant. By reporting ESG-scores in the financial reports of firms the spread decreases with
0.1461. Table 4 shows an insignificant negative correlation between ABNORMAL_RETURN
and ESG_SCORE. E.g. when report ESG-scores in their financial reports the abnormal returns
decreases with 0.0116. This decrease meets the earlier expectations.
There is evidence found for a positive significant correlation in table 4 of SPREAD
with the control variable ROA (0.0733) and a negative significant correlation of the control
variables FIRM_SIZE (-0.1125) and LEVERAGE (-0.0610). In table 4 is visible that
ABNORMAL_RETURN is significantly positive correlated with ROA (0.0541) and
negatively with FIRM_SIZE (-0.1007) and LEVERAGE (-0.0541).
The control variables in the framework are generally weak and moderate correlated,
except for the significant positive relationship of VOLUME with PROFIT (0.6149), which is
strongly correlated. Variables with correlations values between 0.6 and 1.0 (-0.6 and -1.0)
indicate a strong positive (negative) linear relationship. The relationship VOLUME with
PROFIT is the only correlation that is classified as a strongly correlated relationship, except
from the one strongly related correlation there is no reason to believe that multicollinearity
issues are present. This is consistent with Variance Inflation Factor (VIF) of the variables that
is below 10, which indicates no multicollinearity (Table 16 in the appendix). Altogether there
is no reason to assume that there is any interference with the OLS assumptions summed up in
the appendix.
The Pearson correlations assess linear relationship, while an additional test of Spearman
correlation also tests the relationship whether it is linear or not. Main reason why the Spearman
correlation test is used, is to assure that the correlations calculated are not driven by several
extreme found observations. Altogether there are no significant differences with the Pearson
correlation. In table 5 are the Spearman correlations displayed (Veenman, 2013).
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry” by Jacfar Yusuf (2018).
Table 4 Pearson correlations.
Notes: Table 4 and 5 shows respectively the Pearson and Spearman correlations. Variables with correlations values between 0.6 and 1.0 (-0.6 and -1.0) indicate a strong positive (negative) linear relationship.
Table 5 Spearman correlations
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018).
4.1.3 Homoscedasticity
Regression analysis contains several assumptions including homoscedasticity. When the
error/noise terms of independent variables have the same variance in the model, the assumption
is applicable, that the model contains homoscedasticity. When this variance differs
significantly there are reasons to assume that there is any heteroscedasticity in the model. Thus
heteroscedasticity occurs from the absence of homoscedasticity. Heteroscedasticity shows that
the standard errors are influenced by biases. Their biased standard errors are functioning as a
central element in testing the model, which lead to wrong interpretations of the significance
coefficients. The Breusch-Pagan test showed a significant p-values for both research models,
which indicates heteroscedasticity. I order to create more reliable input for the regression test,
I firstly created ‘robust’ standard errors and then I clustered the standard errors for both models
as suggested in the Stata manual (Veenman, 2013). The ‘clustered’ standard errors directly also
fix the issues with serial correlations.
Regression analysis
This paragraph analyzed the preformed regressions of the stock liquidly and abnormal return
models explained 3.3 and 3.5, which are displayed respectively in table 6 and 7.
During the first regression the dependent variable SPREAD is tested. The results found
during testing hypothesis 1 are displayed in table 6. The adjusted R-square of the stock liquidity
model is 0.0325, that indicates the explanatory value that the variance of dependent variable is
about 3% explained by the regression model. The significant p-value of the Prob>F test
indicates that the models coefficients are all nonzero. Now it can be stated that the independent
variable reliably determines the dependent variables. Prior literature suggested that ESG-scores
(IR) are negative related with the bid-ask spread. Table 6 shows a negative predicted coefficient
sign of -.0004629 with a significant p-value of 0.000. This finding is in line with hypothesis 1
that organizations with IR have will a lower bid-ask spread. As earlier mentioned, I used the
robust and clustered standard errors, which could weaken the conclusions derived out the
model.
For the controls variables PROFIT and ROA in the stock liquidly model are the findings
statistically significant, there are respectively negative and positive relations found with
SPREAD. The negative relation of FIRM_SIZE with SPREAD is in line with the predicted
negative association based on the prior empirical results. This relation is not significant.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 38
Subsequently for the control variable VOLUME is positive related with SPREAD, while a
negative association was expected. For this relationship there is no significance evidence
found, which indicates that it would not materially affect the SPREAD. The negative signs of
LEVERAGE and PRICE_VOL are not statistically significant, although the signs are
consistent with the expected signs drawn from prior literature.
Table 6 Regression Analysis of SPREAD
Notes: In this table are the results of the regression displayed of the dependent variable SPREAD from the sample period 2010-
2016.
For the second regression of the research is the dependent variable ABNORMAL_RETURN
tested. The results found during testing hypothesis 2 are displayed in table 7. The Adjusted R-
square is 0.0186, that indicates the explanatory value that the variance of dependent variable is
about 2% explained by the regression model. The significant p-value of the Prob>F test
indicates that the models coefficients are all nonzero. Now it can be stated that the independent
variable reliably determines the dependent variables. Prior literature suggested that ESG-scores
(IR) are negative related with the abnormal returns. Table 7 shows a weak positive predicted
coefficient sign of .0000202. This sign is inconsistent with the earlier predict negative sign
based on prior literature that organizations with IR will have a lower ABNORMAL_ RETURN,
however for this association there is no significant evidence found. This finding is not in line
with hypothesis 2, that organizations with IR will have lower abnormal returns. As earlier
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 39
mentioned and used for the stock liquidity model, I will use the robust and clustered standard
errors of the abnormal return model.
For the controls variables FIRM_SIZE and ROA in the abnormal return model, there
are negative signs found, which are both statistically significant. For both variables, the
findings are consistent with earlier formulated predictions that they lower the Abnormal
returns. Subsequently for the variables VOLUME and PROFIT there is significant evidence
found in form of a positive relationship with SPREAD, while for the variables a negative
association was expected. The negative signs of LEVERAGE and PRICE_VOL are not
statistically significant, although the signs are consistent with the expected signs based on the
literature.
Table 7 Regression Analysis of ABNORMAL_RETURN
Notes: In this table are the results of the regression displayed of the dependent variable SPREAD from the sample period 2010-
2016.
In the table here below are the outcomes of the hypotheses displayed;
Table 8 Hypotheses outcomes of the regression
Hypothesis 1: Organizations with a high
level of alignment with the Integrated
Accepted
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 40
Reporting framework results in lowering the
bid and ask-spread.
Hypothesis 2: Organizations with a high
level of alignment with the Integrated
Reporting framework results in lowering the
abnormal returns.
Rejected
In general the results of the regression analysis suggest a support for hypothesis 1 that a high
level of alignment with the IR framework leads to a reduction in the bid and ask spread.
Furthermore, there is no supporting statistical evidence found that high level of alignment with
the IR framework results in a reduction of the abnormal returns. With the efficient market
hypothesis in mind, investors’ expectations are incorporated in the stock prices. Nonetheless
there was no supporting evidence found that an higher alignment with the Integrated Reporting
framework results in an reduction of information asymmetry.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 41
5 Conclusions
Summary
Over the years the increase in the demand for integration of non-financial data in the financial
statement led to the introduction of a sophisticated integrated framework, that is based around
integrated thinking (Adams et al., 2011). Integrated Reporting gained its momentum over the
last decade. Integrated Reporting uses financial, manufactured, human, intellectual, natural,
social and relationship to create value overtime for its investors. E.g. Owen (2013) states that
old fashioned financial reporting is primarily focused on the transactional and operational
aspect of business and fails to capture the long-term strategic and the prospective analysis facets
of reporting. These shortcomings are being covered by the Integrated Reporting framework.
Other benefits of IR are having better internal decisions, having better relationships with
stakeholders and a lower reputational damage. Flower (2015) criticizes how stakeholders
interest and human capital are incorporated in the framework. There are still unanswered
questions how the targeted audience of the framework is incorporated.
Conclusions
The motivation to research this subject was mainly driven by the demand to bring insight in
how the stakeholders are incorporated in the IR framework. The main objective of the research
is to determine the effect of the Integrated Reporting framework on the information asymmetry.
The research question is as follows: “how is Integrated Reporting interrelated with information
asymmetry?”. Stoll (2000) mentioned that the bid-ask price functions as a proxy of information
asymmetry. Prior researches (Nichols & Wahlen, 2004) showed that abnormal stock-returns
good proxy for information asymmetry. Due to the similarities of CSR and IR of how financial,
environmental, social and governance information are incorporated in the financial reports, I
operationalized the independent variable IR via the proxy ESG_SCORE. Based on the two
proxies bid-ask price and abnormal stock-returns is expected that Integrated Reporting has
negative relationship with information asymmetry.
The dataset consists of 3,155 observations retrieved from the ASSET4 database of
ESG-scores from 503 US listed companies with the biggest market capitalization over a time
span of 7 years. The dataset contains firms such as Apple, Alphabet/Google and Amazon.
The results for the stock liquidity show a significant association of companies that
Integrated Reporting negatively predicts the bid-ask spread. Lower level of bid-ask spread
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 42
equals higher level of stock liquidity, which displays a lower information asymmetry for the
investors. There are numerous factors selected that could determine and have an effect on the
information asymmetry, still Integrated Reporting kept its significant negative sign. Altogether
the result found that IR has a negative relations with information asymmetry, is in harmony
with expected results based on the research Lee and Yeo (2016).
The results shows that the abnormal normal returns are positively predicted by
Integrated Reporting, however this relation is not significant. This indicates that users of the
Integrated Reporting framework have higher abnormal normal returns. Hence, this leads to an
growth of the information asymmetry for the investors. The found results are inconsistent with
the Integrated Reporting framework results into lower abnormal returns based on the research
of Nichols and Wahlen (2004).
A question that is still unanswered is, which model is the most reliable? The Adjusted
R-square of the stock liquidity and abnormal normal model are respectively 0.0325 and 0.0186.
Both models have an Adjusted R-square that are seen as very low, that doesn’t explain much
of the variance. Altogether is hard to pick which model is more reliable than the other, by a
research opinion both models would be seen as not reliable.
Finally, the results found during this master thesis suggests that the research outputs
meets the expectations that the Integrated Reporting framework is related in a negative manner
with information asymmetry. The contribution of this research enlarges the accounting and
reporting knowledge. Integrated thinking is key in order to protect the transparency of the
information flow and the business (IIRC, 2017). This corresponds to the findings found during
the research. Integrating integrated thinking in the business can be the motive that the worries
about the operations of the firm are taken away. This master thesis research can be used as a
baseline for future researches over the association of Integrated Reporting with information
asymmetry. The relationship could be examine more deeply. Although there is evidence found
that Integrated Reporting reduces information asymmetry, however it stays hard to say that it
is exactly the case due the reliability issues.
Limitations
During the execution of this research couple limitations appeared and for purposes as further
research it is convenient to keep the limitations in mind. The first limitation is about the initial
sample, which was to examine the European companies with integrated reports. In this research
I have only looked at the North-American companies.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 43
Subsequently, the final sample of 503 Northern-American companies is relatively small
to generalize to a population level, in comparison to the total population of approximately
55,000 northern-American listed firms. Again, like the first limitation a broader scope could
improve the reliability of the study.
The third limitation is a very common limitation of an archival study. The chosen
variables are influencing the end results of this study. The limitation is about unsystematically
picking the variables, which indicates that the research could be subjected to biases. Integrated
Reporting could be associated with excluded variables.
The last limitation is about the determination of the desired height of the quality of the
Integrated Reporting framework, which was omitted from the scope of the study.
Further research
For further research, I suggest to research a more global setting, by also considering the
European companies and their relationship with the different variables. The dataset must then
be large enough to ensure more reliability and to have no conflict with the corresponding
assumptions related to the applicable regressions.
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 44
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Appendices
Appendix 1: OLS Assumptions
OLS Assumption 1: The linear regression model is “linear in parameters.”
OLS Assumption 2: There is a random sampling of observations.
OLS Assumption 3: The conditional mean should be zero.
OLS Assumption 4: There is no multi-collinearity (or perfect collinearity).
OLS Assumption 5: Spherical errors: There is homoscedasticity and no autocorrelation.
OLS Assumption 6: Error terms should be normally distributed.
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Appendix 2: Libby boxes
Figure 2 Research Framework
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by Jacfar Yusuf (2018). 52
Appendix 3: Test for normality
Table 9 Skewness/Kurtosis tests for Normality
Notes: This table shows for the variables the results of the skewness/kurtosis test including the Prob>chi2.
Table 10 Shapiro-Wilk W test for Normality
Notes: This table shows for the variables the results of the Shapiro-Wilk test including the Prob>z.
Table 11 Descriptive Statistics of sample after winsorizing
Notes: This table shows for the variables the descriptive statistics after winsorization total observations (N), mean, standard deviations, min,
max and median over the sample period 2010-2016.
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Table 12 Histograms & Box plots SPREAD of the transformation due to winsorizing
Histogram
Box plot
Notes: Table 12 presents the change of the distrubution in the histograms and box plots toward a more “so called” normal distrubution of the
varible SPEAD.
05
10
SP
RE
AD
0.1
.2.3
.4S
PR
EA
D
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 54
Table 13 Histograms & Box plots ABNORMAL_RETURN of the transformation due to
winsorizing
Histogram
Box plot
Notes: Table 13 presents the change of the distrubution in the histograms and box plots toward a more “so called” normal distrubution of the
varible ABNORMAL_RETURN.
02
46
De
nsity
-.5 0 .5 1 1.5 2ABNORMAL_RETURN
02
46
8D
en
sity
-.2 -.1 0 .1 .2ABNORMAL_RETURN
-.5
0.5
11
.52
AB
NO
RM
AL
_R
ET
UR
N
-.2
-.1
0.1
.2A
BN
OR
MA
L_
RE
TU
RN
University of Amsterdam MSc Accounting & Control 2017/2018 thesis “Interrelation of Integrated Reporting with information asymmetry”
by Jacfar Yusuf (2018). 55
Appendix 4: Regression
Table 14 Breusch-Pagan test for the SPREAD model
Notes: Table 14 tests the heteroscedasticity of the variable SPREAD. The test used is the Breusch-Pagan test, which displays
the p-value for the variable. Heteroscedasticity shows that the standard errors are influenced by biases.
Table 15 Breusch-Pagan test for the ABNORMAL_RETURN model
Notes: Table 15 tests the heteroscedasticity of the variable ABNORMAL_RETURN. The test used is the Breusch-Pagan test,
which displays the p-value for the variable. Heteroscedasticity shows that the standard errors are influenced by biases.
Table 16 Variance Inflation Factor (VIF)
Notes: A Variance Inflation Factor of smaller than 10 indicates that there is no multicollinearity in the sample that is used for
the regression.
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