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There&nbsp;is an ongoing debate about whether integrated reporting should be mandatory or&nbsp;voluntary. Empirical evidence mostly focused on South African mandatory&nbsp;disclosures, indicate that the firm&rsquo;s information environment is relevant to&nbsp;explain the effects on the cost of capital. However, results based on voluntary&nbsp;disclosures indicate that the country&rsquo;s level of enforcement explains the effects.&nbsp;This paper analyses the effects of voluntary disclosures of integrated reports&nbsp;on the cost of capital for Brazilian listed companies. Our design is developed&nbsp;to control the level of enforcement and evaluate if firm-specific&nbsp;characteristics may explain the effects on information asymmetry related to the&nbsp;disclosure of integrated financial and non-financial information. We collect&nbsp;data from 2014 to 2017 and compare the effects on capital cost for a group of&nbsp;firms that voluntarily disclose integrated reports with a control group&nbsp;identified via Propensity Score Matching. We can identify that larger firms,&nbsp;with stronger corporate governance and lower risk, are more likely to&nbsp;voluntarily disclose integrated reports. In our second stage, we find no effect&nbsp;on the cost of capital after the voluntary disclosure. Taken together, our&nbsp;results are aligned with prior studies focused on mandatory disclosures: the&nbsp;firm&rsquo;s information environment is relevant to explain the potential capital&nbsp;market benefits of Integrated Reporting.&nbsp;

NCAF.2021.06.01.pdf

Original Research 

NCAF.2021.06.01.xml

Voluntary Disclosure of Integrated Reporting and Cost of Capital in Brazil: an Alternative Explanation

There&nbsp;is an ongoing debate about whether integrated reporting should be mandatory or&nbsp;voluntary. Empirical evidence mostly focused on South African mandatory&nbsp;disclosures, indicate that the firm’s information environment is relevant to&nbsp;explain the effects on the cost of capital. However, results based on voluntary&nbsp;disclosures indicate that the country’s level of enforcement explains the effects.&nbsp;This paper analyses the effects of voluntary disclosures of integrated reports&nbsp;on the cost of capital for Brazilian listed companies. Our design is developed&nbsp;to control the level of enforcement and evaluate if firm-specific&nbsp;characteristics may explain the effects on information asymmetry related to the&nbsp;disclosure of integrated financial and non-financial information. We collect&nbsp;data from 2014 to 2017 and compare the effects on capital cost for a group of&nbsp;firms that voluntarily disclose integrated reports with a control group&nbsp;identified via Propensity Score Matching. We can identify that larger firms,&nbsp;with stronger corporate governance and lower risk, are more likely to&nbsp;voluntarily disclose integrated reports. In our second stage, we find no effect&nbsp;on the cost of capital after the voluntary disclosure. Taken together, our&nbsp;results are aligned with prior studies focused on mandatory disclosures: the&nbsp;firm’s information environment is relevant to explain the potential capital&nbsp;market benefits of Integrated Reporting.&nbsp;

Voluntary Disclosure of Integrated Reporting and cost of Capital in Brazil: an Alternative Explanation