Can Mandatory Integrated Reporting Affect the Value Relevance of Non Financial Information? The case of the Johannesburg Stock Exchange (JSE)

This research aims to investigate the field of nonfinancial information analyzing a new model of corporate reporting, i.e. Integrated Reporting. Assessing the convergence of three different frameworks, i.e. GRI Framework, IIRC International Framework and the South African corporate governance code, King III, this study examines whether the adoption of Integrated Reporting by listed South African companies could enhance the disclosure of nonfinancial information. More specifically, we performs a value relevance study on nonfinancial information in order to understand the usefulness of the adoption of Integrated Reporting for investors. Our empirical analysis uses a sample of 131 listed companies on the Johannesburg Stock Exchange to test the association of a nonfinancial disclosure index with firm’s market value (i.e. market value of equity to book value of equity). We find that the adoption of Integrated Reporting, as a mandatory listing requirement for the Johannesburg Stock Exchange, is able to exert a positive influence on the disclosure of nonfinancial information. On the other side, using the linear regression of the Ohlson’s model we did not find a significant association between firm’s market value and nonfinancial information disclosure index. This result seems to confirm that regulations can obstacle innovatory corporate disclosure approaches. Although South Africa is a pioneer country in adopting an innovative reporting model, the negative reaction of financial market does not support this new listing requirement. These findings can provide relevant implications for policy regulators, practitioners and investors.