The value relevance of integrated reporting in the United Kingdom Open Access

Over the past couple of years, the corporate world has experienced a shift from separate financial and non-financial reporting into one integrated type of reporting, i.e. integrated reporting (IR) (Andronoudis et al., 2024). Events such as the global financial crisis and unexpected corporate scandals such as those of Enron, Arthur Andersen and WorldCom undermined confidence in traditional corporate reporting (Carnegie and Napier, 2010) and heightened the importance of non-financial reporting (Nada and Győri, 2023). Traditional corporate reporting has been criticised for presenting retrospective information, which does not consider risks that an entity may encounter in future (Jensen and Berg, 2012), presenting excessive disconnected information, which is complex and difficult to interpret (Omran et al., 2021) and failing to incorporate societal and environmental matters (Fayad et al., 2024). IR was created in response to such criticism, to incorporate firm’s strategies and value creation into a single integrated report and overcome the disconnectedness of financial and non-financial information (Permatasari and Narsa, 2022; Oktorina et al., 2022).

As a result, IR, which combines both financial and non-financial reporting into a single report, began gaining global momentum in 2010, when the International Integrated Reporting Council (IIRC) was established in the UK (IIRC, 2011). IR provides stakeholders with the necessary connected information, which enables them to make effective business decisions (Radwan and Xiongyuan, 2024). According to the International Integrated Reporting Framework (IIRF) 2021, the primary purpose of an integrated report is to “explain to providers of financial capital how an organisation creates, preserves or erodes value over time” (IIRC, 2021). Therefore, at the centre of IR, is the integration of all types of financial and non-financial reporting into a single report, which describes how an organisation creates value over time.

In terms of adoption, IR is still voluntary in many countries (Hsiao et al., 2021), despite the fact that in 2013, the IIRC had a long-term vision that companies across the world would adopt it (IIRC, 2013). This is evidenced by the limited number of countries that have mandated IR through various legislations – for example, South Africa (Soriya and Rastogi, 2023; Andronoudis et al., 2024) – compared to several countries where IR is still voluntary – for example, China (Sun et al., 2022a, 2022b), India (Soriya and Rastogi, 2023), Bangladesh (Dey, 2020), Japan (Sun, 2021) and Sri Lanka (Haleem et al., 2020). Regardless of whether IR is mandatory or not, IR can impact the firm’s ability to create value (Asadi et al., 2024). IR can enhance firm value by improving the speed and quality of information delivered to stakeholders, which is reflected in stock prices (Lee and Yeo, 2016). It also promotes accountability and transparency, thereby supporting effective decision-making and serving as a governance mechanism (Delegkos et al., 2022). In addition, IR encourages firms to optimise their decisions and enhance their reputation in the market, which contributes to value creation (Nandram and Harchaoui, 2020). IR also strengthens investor trust, leading to better access to capital and reduced risk premiums.

Over the years, the IIRC has promoted IR as a new form of corporate reporting that delivers value-relevant and holistic information, enabling investors and other stakeholders to make informed decisions that create sustainable value (IIRC, 2013). However, whether IR delivers on this promise, especially in the UK, where the IIRC originated, remains largely untested (Jablowski, 2021). Despite a growing global push towards IR, its actual impact on firm value remains unclear, particularly in countries where adoption is voluntary. On the one hand, IR can enhance firm value by offering shareholders insights into a firm’s strategy, business model and value creation process. On the other hand, it may reduce firm value by revealing proprietary information to competitors (Cooray et al., 2020). This raises a critical question worth exploring:

The limited number of empirical studies on IR is well documented (Akhter, 2019). This is particularly striking in the case of the UK, which serves as the home base of the IIRC (Bakker et al., 2020). Although there are studies that have explored the value relevance of IR in the UK (for example, Slack and Tsalavoutas, 2018; Zouari and Dhifi, 2022), important gaps remain. Slack and Tsalavoutas (2018) applied qualitative assessments to evaluate the usefulness of IR, whereas Zouari and Dhifi (2022) investigated the mediating role of IR through Chief Executive Officer characteristics and did not directly assess its effectiveness using market-based measures. On a different note, Albitar et al. (2020) examined the impact of environmental, social and governance (ESG) disclosures on firm performance before and after the introduction of IR in the UK. However, they did not directly measure IR adoption or quality. Instead, their focus was on ESG disclosure and corporate governance mechanisms, using the IR context only as a temporal benchmark. As such, their study does not provide an evaluation of the actual content or quality of integrated reports. Other studies, such as Martinez (2016) and Jablowski (2021), include UK firms in broader cross-country samples; however, they do not isolate UK-specific effects or use disclosure indices aligned with the IIRF. Therefore, this study contributes to the discourse by developing a disclosure index (IRSCORE) that incorporates both the content elements and guiding principles of the IIRF.

Very few studies on IR measure the extent and quality of IR using self-constructed disclosure indices that are directly developed from the IIRF (Hoang et al., 2020). Most existing studies focus solely on the content elements of the IIRF, overlooking the guiding principles that define the qualitative characteristics of a good integrated report. For example, Lee and Yeo (2016) developed an IR disclosure index based only on content elements, omitting the guiding principles. Similarly, Dey (2020) constructed a disclosure index using only the content elements of the IIRF in examining the value relevance of IR in Bangladesh. Given such approaches, Velte (2021) calls for future studies to develop IR disclosure indices that incorporate guiding principles such as materiality, conciseness and connectivity, as these principles are essential in reflecting the quality of IR. Gerwanski et al. (2019) further argue that integrated reports can only provide useful information to capital markets if they are concise and include material information. Therefore, this study evaluates disclosure based on both the content elements and guiding principles of the IIRF, offering a more comprehensive measure of IR quality and extending the literature. Furthermore, applying both Tobin’s Q and the Ohlson (1995) model to assess the value relevance of IR from two complementary valuation perspectives. While Tobin’s Q reflects market expectations, the Ohlson model ties firm value to book value and abnormal earnings. This dual-model approach enhances the robustness of the analysis and provides stronger evidence than studies that rely on a single valuation metric.

This study explores the value relevance of IR in the UK, a voluntary reporting environment where the IIRC was originally established. Drawing on data from the Top 100 firms listed on the London Stock Exchange (LSE) between 2011 and 2018 and using panel estimated generalised least squares (EGLS) estimation, the analysis found no significant link between IR quality (IRSCORE) and firm value. This result remained consistent across different value proxies and robustness checks. The absence of a significant relationship between IR and firm value in the UK has direct policy and practical implications. From a policy perspective, it indicates that voluntary IR is not influencing investor decisions, calling for a review of its current positioning in the regulatory landscape. Stronger enforcement or clearer guidance may be required to enhance its relevance. From a practical standpoint, the findings show that IR, in its current form, does not deliver measurable value to firms. Without investor confidence and meaningful disclosure, IR becomes a formal exercise with limited strategic or financial impact.

The remainder of this study is as follows: Section 2 presents the literature review and hypothesis development. Section 3 explains the sample selection process, construction of an IR disclosure index and the empirical model used to test the hypothesis. Section 4 presents the results and Section 5 presents the discussion of the results. Section 6 presents the additional test conducted in the study and, finally, Section 7 concludes the study.

This section deals with four major aspects. In the first section, a review of the concept of value relevance is discussed. This is followed by a review of studies on IR, which have developed their own IR indices to measure the quality and quantity of IR disclosure. This is followed by a review of empirical studies on IR. Finally, a theoretical framework employed in the study and hypothesis development is discussed.

Seminal studies such as those of Ball and Brown (1968) and Beaver (1968) serve as a bedrock for value relevance studies. Such studies examined the association between accounting amounts and firm value. Numerous studies in literature have since followed suit and investigated the value relevance of either financial information or non-financial information, in other words, the association between corporate information and firm value (Jayasiri et al., 2022). One of the early studies by Barth et al. (2001) state that an accounting amount is value relevant if it has a predicted association with firm value. This definition has since been used in numerous studies examining value relevance, not only of financial reporting but also environmental and sustainability reporting (Migliavacca, 2024), corporate social responsibility reporting (Tsang et al., 2024) and IR (Radwan and Xiongyuan, 2024). When information is useful to the decision makers and can potentially influence firm value, it is thus considered as value relevant (Radwan and Xiongyuan, 2024). In terms of IR, some studies report that the integration of social and environmental information into annual reports, i.e. IR can positively influence firm value (Delegkos et al., 2022). However, other studies such as that of Ribeiro et al. (2024) find that IR is not relevant for investment decision-making.

No single IR quality index or evaluation tool exists in literature (Zennaro et al., 2024). Due to this, various studies in literature have developed unique self-constructed indices, checklists or coding frameworks to measure the extent and quality of IR (Zennaro et al., 2024). One of the first and widely cited study in this regards is a study by Lee and Yeo (2016), which examined the association between IR and firm value in South Africa. Using a sample of johannesburg stock exchange-listed firms between 2010 and 2013, Lee and Yeo (2016) constructed a disclosure index based on the eight content elements of the IIRF (2013) to evaluate the quality of IR. However, the study’s index did not consider the guiding principles as suggested by the IIRF (2013).

Zhou et al. (2017) investigated whether companies producing integrated reports that are more aligned to the IIRF (2013) have less analyst forecast error. To achieve this objective, Zhou et al. (2017) developed a coding framework constructed in line with the IIRF Prototype issued by the IIRC in 2013. At the time of their study, the IIRC had not finalised the IIRF, which was released in 2013. Nevertheless, the study’s coding framework was based on the eight content elements as recommended by the IIRF prototype, however, ignoring the guiding principles of the IIRF. Shortly after this, Barth et al. (2017) investigated the association between IR quality and firm value for a sample of South African-listed firms, between 2011 and 2014. The authors constructed the index to evaluate the quality of IR using the scores from Ernst &Young’s (EY) Integrated Reporting Awards, which are held annually by EY. The authors were given proprietary access to this information as EY does not publish their marking tool. This provides a limitation as other academic authors cannot replicate the index, which was adopted in this study. Pistoni et al. (2018) developed a framework to assess IR quality of 58 firms listed on the IIRC database. This framework evaluated the readability and clarity of the integrated report, the presence of content elements in the report and accessibility of the integrated report. However, this method is highly subjective and as such the results cannot be generalised to other samples (Pistoni et al., 2018). More recently, Radwan and Xiongyuan (2024) assessed the quality of IR using an index adapted from Pistoni et al. (2018) and evaluated the value relevance of IR.

Other studies followed suite investigating the quality of IR in different countries and settings. For example, Cooray et al. (2020) assessed the value relevance of IR in Sri Lanka between 2016 and 2018. Cooray et al. (2020) developed a scoring index based on the guiding principles of IIRF (2013), principles of Global Reporting Initiatives and IASB’s Conceptual Framework to evaluate the quality of integrated reports. However, this index ignored the important content elements recommended by the IIRF, and therefore, it is possible that the results obtained from this analysis may be incomplete or not a true reflection of the extent and quality of IR for these Sri Lankan studies. It is unclear how Cooray et al. (2020) evaluated the quality of IR without considering content elements as recommended by the IIRF, again highlighting a shortcoming in the study. Maama and Marimuthu (2022) examined the association between IR and cost of capital using a sample of listed firms in sub-Saharan countries. The authors developed a checklist an index based on the guiding principles of the IIRF and did not consider the content elements of the IIRF.

In 2023, Hamad et al. (2023) examined the impact of IR quality on the sustainable goals development’s performance. Using a sample of Malaysian’s top 100 public listed companies from 2016 to 2020, the study developed an index using the eight content elements of the IIRF and the six capitals, again disregarding the guiding principles of the IIRF. Recently, Hichri and Alqatan (2024) investigated the value relevance of IR using a sample of international firms. They developed an IR measurement index using the ASSET4 DataStream item corporate governance vision/strategy. This is one of the few studies that did not use the IIRF to assess the quality of IR. As such, it is possible that this index may not fully capture the essence of IR as intended by the IIRC.

In assessing the extent and quality of IR, Velte (2021) recommends that authors incorporate the guiding principles of the IRF into the IR quality indices. The argument is that integrated reports can only be regarded to be of quality if they are concise and disclose material information as recommended by the IIRF (Gerwanski et al., 2019). The current study uses an index, which was constructed based on both the eight content elements and seven guiding principles of the IIRF, similar to the one used by Soriya and Rastogi (2023). This is important, as the content elements only focus on what information should be disclosed in an integrated report, while guiding principles focus on how the information is presented, which promotes integrated thinking and improves the reporting quality (IIRC, 2021). Assessing the quality of IR by solely focusing on content elements may promote a tick-boxing exercise by the disclosing firm, which contradicts the core objective of the process which is to promote integrated thinking (IIRC, 2021).

Therefore, by combining both content elements and guiding principles of the IIRF into a quality disclosure evaluation index, this ensures that the quality of IR is assessed holistically, in line with the intended aim of the IIRF. Although the number of studies assessing IR quality have grown in quantity, there is still no unified method or index of assessing IR quality, thus this study contributes from a methodical perspective (Nada and Győri, 2023).

A growing body of literature continues to examine the practice of IR (Hossain et al., 2022), rather than the value relevance of IR (Radwan and Xiongyuan, 2024). South African firms were among the first to adopt IR; therefore, most studies on the value relevance of IR tend to focus on South African data (e.g. Lee and Yeo, 2016; Zhou et al., 2017; Barth et al., 2017; Caglio et al., 2020). This limits literature on the value relevance of IR in other countries where IR is voluntary (Soriya and Rastogi, 2022).

Concerning prior research conducted in voluntary IR settings, the few studies that have examined the value relevance of IR in voluntary settings document mixed findings (Cooray et al., 2020; Landau et al., 2020; Cortesi and Vena, 2019). For instance, Radwan and Xiongyuan (2024) investigate the value relevance of IR for Asian firms listed on the IIRC database website between 2015 and 2022 and finds that IR is value relevant and positively associated with market reactions. Furthermore, Hichri and Alqatan (2024) provide evidence that IR is value relevant for a sample of international firms from France, Australia, South Africa, Denmark and Canada. Furthermore, Dey (2020) demonstrates a positive association between IR and firm value for a sample of firms listed in Bangladesh between 2013 and 2018. Likewise, a positive relationship between IR quality and firm value has also been reported for Indian firms (Makri and Kabra, 2023).

However, other studies suggest that IR is not value relevant. For instance, Cooray et al. (2020) found that IR in Sri Lanka is not value relevant. These findings are further supported by another study by Wahl et al. (2020) who report no association between IR and firm value for a sample of firms listed on the IIRC database from 2011 to 2018. Likewise, Cortesi and Vena (2019) demonstrates a negative relationship between IR and firm value for a sample of 636 firms from 57 countries listed on the IIRC database between 2011 and 2017.

The majority of the studies that have been conducted in voluntary settings often draw on samples of firms from different countries instead of a single country (Wahl et al., 2020; Cortesi and Vena, 2019). For example, Permatasari and Narsa (2022) used a sample of firms from several countries in Europe and South Africa between 2009 until 2015 and demonstrates that IR is only value relevant when it is used with accounting information. Likewise, Gregorovious (2021) documents no association between voluntary IR and firm value, for a sample of 20 firms from the USA from 2015 to 2019. Furthermore, Hsiao et al. (2021) used a sample of global firms from the IIRC Examples Database and GRI database to investigate the value relevance of integrated and sustainability reporting and found no association between IR and firm value. With regards to using a list of firms from the IIRC database, Barth et al. (2017) warn that using a list of these voluntary adopters could cause self-selection bias. Therefore, the findings presented in this study add to the limited number of studies on the value relevance of IR in countries where IR is voluntary while addressing the issue of self-selection bias.

This study is grounded by two key theories: agency theory and signalling theory. The agency theory developed by Jensen and Meckling (1976) explains the relationship between shareholders (principals) and managers (agents), emphasising how information asymmetry can lead to conflicts of interest. In this context, corporate disclosures like IR are seen as tools to reduce information asymmetry. Larger firms or those with complex operations tend to experience higher agency costs (Senani et al., 2024). Therefore, such firms are more likely to adopt comprehensive disclosure practices, including IR, to reduce these costs and reassure shareholders (Shehata, 2014). High-quality IR, aligned with the IIRF, is seen as a mechanism to reduce agency problems and support value creation (Hoang et al., 2020). The signalling theory proposed by Spence (1978) complements this view by focusing on how firms voluntarily communicate value-relevant information to the market. Voluntary IR can act as a signal of superior firm performance or transparency (Grassmann et al., 2019). Firms issuing high-quality integrated reports may aim to differentiate themselves from peers, suggesting better governance, long-term vision or commitment to sustainability. This aligns with evidence suggesting that integrated reports that follow the IIRF principles may reduce information risk and improve investor confidence (Zhou et al., 2017; Martinez, 2016). Putting it together, IR can be viewed as a governance monitoring mechanism through the agency theory lens and credibility-enhancing mechanisms via the signalling theory, making the theories relevant for corporate disclosure practices.

The theoretical arguments presented above are supported by a growing empirical work, but with mixed findings, especially in a voluntary IR environment. One strand of the literature reports a positive association between IR and firm value. For instance, Islam (2021) found a significant positive association between IR and firm value in Bangladesh, a voluntary setting. The same evidence is reported by Dey (2020), who studied the banking sector in the same country – Bangladesh. Likewise, Zhou et al. (2017) found that integrated reports aligned to the IIRF reduced analyst forecast errors, suggesting that IR improves decision-useful information. On the other hand, some studies report a negative or insignificant relationship between IR and firm value. Wahl et al. (2020) found no link between IR and firm value in a global sample of voluntary adopters. Cooray et al. (2020) found no evidence of direct IR impact on firm value in Sri Lanka. Cortesi and Vena (2019) also observed a negative relationship between IR and firm value, suggesting that voluntary IR may not meet investor expectations or that investors rely more on mandatory disclosures. These contradictory findings may result from differences in how IR quality is measured, variations in regulatory environments or levels of market sophistication. In voluntary settings, the extent of adoption matters due to the discretionary nature of IR disclosures, giving firms flexibility in what to report (Cooray et al., 2020). This results in wide discrepancies on the extent of disclosure, thereby affecting value relevance. Based on the agency and signalling theory, this study assumes that IR, if prepared according to the IIRF, provides valuable signals to investors and helps reduce agency costs. If this is true, firms providing higher-quality IR should enjoy higher firm value. Thus, the study formulates the following hypothesis:

This study investigates the value relevance of IR using data from top 100 firms listed on the LSE in the UK. The analysis covers an eight-year period from 2011 to 2018. The year 2011 marks a foundational stage in global IR adoption, as it coincides with the launch of the IIRC, the release of its Discussion Paper Towards Integrated Reporting – Communicating Value in the 21st Century (IIRC, 2011) and the start of the IIRC’s pilot programme (Havlová, 2015). These developments encouraged firms to begin experimenting with voluntary IR practices to build investor confidence (Zhou et al., 2017). Starting the sample in 2011 allows the study to capture the market’s early response to IR. The sample ends in 2018, five years after the IIRF was released, allowing time for IR adoption and avoiding the reporting distortions caused by global events such as the COVID-19 pandemic (Roberts et al., 2023). The sample comprises the Top 100 LSE-listed firms as at 31 December each year. Financial data were sourced from Refinitiv, whereas integrated reports were obtained from company websites. Firms were included only if complete data – financial, reporting and market-related – were publicly available for the entire period. This yielded a final sample of 525 firm-year observations across eight sectors, as detailed in  Appendix 1. The variables TOBINQ, leverage (LEV), return on assets (ROA), capital growth opportunities (CAPEXR) and sales growth (SALESG) were winsorised at the 95th percentile to control for outliers, following Zhou et al. (2017). Variance inflation factors (VIFs) were used to check for multicollinearity in the data set.

This study developed an IR scoring index (IRSCORE) as a tool to measure IR disclosure. The IRSCORE was formulated based on the seven guiding principles and eight content elements of the IIRF (2013), as outlined in  Appendix 3. The integrated reports of the sample firms were evaluated against the IRSCORE, which served as an independent variable in the regression models used to test the association between IR and firm value. Consistent with prior studies, such as Nguyen et al. (2021), this study adopted a non-weighted scoring approach. This approach assigns equal values (0 or 1; yes or no) to disclosure items, regardless of how the information is presented (Dumay and Cai, 2015). Specifically, the scoring index used in this study assigned a score of 1 if the required information was present in the integrated report and 0 if it was not. Following Hoang et al. (2020), the scoring process involved reviewing the integrated reports of the sample firms against the IRSCORE developed in this study. The final IRSCORE included 35 questions, expressed as percentages out of 100% for equal weighting purposes. A score of 1 was awarded if the answer to a question was “yes”, and 0 if it was “no”. Therefore, the maximum score for an integrated report was 100%.

A self-constructed index allows researchers to capture specific aspects they intend to measure; however, it is prone to the risk of subjectivity (Healy and Palepu, 2001). To address this concern, this study carefully ensured the validity and reliability of its self-constructed index by following established practices in the literature. Firstly, the disclosure index was developed directly from the IIRF (2013) to ensure alignment with recognised standards (Nguyen et al., 2021). Secondly, the metrics were refined based on prior studies (Guthrie et al., 2004), providing a foundation rooted in existing research. A pilot test was conducted using 20 integrated reports, consistent with Saunders et al. (2012) and Sun (2021). The test results were reviewed and discrepancies in scoring were resolved to improve consistency and clarity. Finally, internal consistency was evaluated using average inter-item correlations to measure whether the guiding principles and content elements assessed the same construct (BrckaLorenz et al., 2013). Following Clark and Watson’s (1995) recommended range of 0.15–0.50, the guiding principles achieved a mean correlation of 0.242 and the content elements scored 0.484. These values confirm the reliability of the IRSCORE used in this study.

This study used Tobin’s Q model to test the association between IR, proxied by IRSCORE and firm value. Tobin’s Q, introduced by Tobin (1969) has become a widely used metric in accounting and finance research (Abogazia et al., 2024; Kyere and Ausloos, 2021). It measures the ratio of a firm’s market value to the replacement cost of its assets, effectively capturing both tangible and intangible value (Barth et al., 2017). Tobin’s Q is particularly well suited to this study, as it reflects the broader dimensions of value creation emphasised by IR, including intellectual, human, environmental, social and relationship capital (Wahl et al., 2020). By incorporating these aspects, Tobin’s Q provides a comprehensive measure of firm value, aligning with the objectives of IR to capture value beyond financial metrics. In addition, higher values of Tobin’s Q denote better firm investment opportunities and growth potential (Salvi et al., 2022).

Following similar IR studies in literature, this study controlled for several firm-specific characteristics, which may influence firm value (Obeng et al., 2020). Furthermore, controlling for such variables reduces bias in the model (Garcia-Sanchez et al., 2021; Salvi et al., 2022). The study controlled for leverage (LEV) as debt holders often demand additional disclosures as an avenue to monitor debt (Hoang et al., 2020). The study also controlled for profitability (ROA), because profitability is a determinant for disclosure as profitable firms can devote more resources towards IR, thus reducing information asymmetry (Dhaliwal et al., 2012). In addition, profitable firms are incentivised to communicate their superior performance through increased IR disclosures, thus sending a positive signal to the capital markets (Sobhan and Mia, 2024). Return on assets is a proxy commonly used by researchers to measure profitability in Tobin’s Q model studies, and thus this study also used ROA as a proxy for profitability (Salvi et al., 2022). The selection of one variable to measure financial performance over another is not clearly defined in literature, scholars use proxies that best fit their research objectives (Islam, 2021).

In contrast, loss firms (LOSS) may disclose less information through IR as they may not have the required resources to invest towards IR (Dilling and Caykoylu, 2019). Following Muttakin et al. (2020), the study controlled for loss firms and allocated a dummy variable equal to 1 if a firm made a loss during the year, or 0 otherwise. The study also controlled for capital growth opportunities (CAPEXR) because firms with higher capital growth opportunities may disclose additional information through IR to attract investments, thus reducing agency costs (Omran et al., 2021).

The study controlled for firm size (LNASSETS), as firm size affects firm’s ability to attract investors (Abogazia et al., 2024). Larger firms have the required resources to devote to IR, thus reducing information asymmetry and influencing firm value (Oktorina et al., 2022). The study also controlled for sales growth (SALESG) because higher sales growth indicates better performance and thus sends a positive signal to the capital markets, which may in turn influence firm value (Asadi et al., 2024; Obeng et al., 2020). A dividend payout or declaration (DIV) signals a firm’s growth opportunities, thus reducing agency costs (Michaels and Grüning, 2017; Asadi et al., 2024). Prior studies suggest that firms in environmentally sensitive industries are inclined to voluntarily disclose more information to reduce information asymmetry and thus maintain their legitimacy (De Villiers et al., 2017). Firms from environmentally sensitive industries were allocated a dummy variable equal to 1, and firms from non-sensitive industries were allocated a dummy variable equal to 0.

To test the association between Tobin’s Q and IRSCORE, the following generalised least squares regression model was estimated:

The subscripts i and t denote firm and year, respectively. All other variables are defined in  Appendix 2.

The panel EGLS method was used for the analysis, using period seemingly unrelated regression (SUR) estimates. This method was selected because it addresses heteroscedasticity and correlation in the model’s error terms (Mance et al., 2025). Period SUR estimates specifically correct for heteroscedasticity and general correlation of observations within each cross-section. In addition, White’s (1980) diagonal standard errors and covariance method, a robust standard error estimation technique, was applied to ensure that significance values were not influenced by heteroscedasticity (Rammala and Toerien, 2024). This approach was applied to all regression equations in the study. To further validate the models, the Durbin–Watson test was conducted to detect serial correlation in the regression error terms.

The descriptive statistics for the variables used in the study are presented in Table 1. It is important to note that the data are unwinsorised to provide an accurate representation of the distribution.

The summary statistics in Table 1 suggest that most of the sampled firms listed on the LSE exhibit profitability and high compliance with IR standards, as reflected by the mean values of 1.711 for Tobin’s Q and 0.801 for IRSCORE. The median (1.454) and maximum (3.770) values of Tobin’s Q indicate that most sampled firms have market values exceeding their book values, highlighting growth potential and asset efficiency. Similarly, the low standard deviation (0.084) for IRSCORE suggests consistent compliance with IR across firms.

The control variables show notable variability, emphasising the need to account for firm-specific characteristics in the analysis. For instance, leverage (LEV) has a range of 19.745 (20.034–0.289), indicating the presence of both highly and lowly leveraged firms in the sample. Sales growth (SALESG) also displays significant variability, with minimum and maximum values of $−0.901$ and 10.758, respectively. This reflects that while some firms experienced negative growth (⁠$−0.901$⁠), others achieved substantial sales growth (10.758). The negative skewness for capital expenditure (CAPEXR) (⁠$−0.650$⁠) suggests that many firms in the sample have lower investments in fixed assets, potentially impacting their long-term growth prospects. Regarding profitability (ROA), the low standard deviation (0.056) indicates relative stability. However, the positive skewness (0.833) suggests that most firms have ROA values clustered below the mean (0.070), with a few firms achieving higher profitability. This indicates that while the majority of sampled firms reported moderate profitability, a small number achieved significantly higher profitability during the sampling period.

The VIFs between the independent variables(IRSCORE, LEV, ROA, CAPEXR, LNASSETS, SALESG, DIV, INDSENS, LOSS) were calculated to test for potential multicollinearity problems. The results are displayed in Table 2.

As shown in Table 2, all the regressors have VIF values below 10, which is considered the acceptable threshold according to Thompson et al. (2017). Therefore, it can be concluded that the data set is free from multicollinearity.

A positive association between IR and firm value was hypothesised. However, the main variable of interest, IRSCORE, is negative and statistically insignificant (⁠$coefficient=−0.0689$⁠; $p-value=0.7810$⁠). This finding suggests that IR in the UK does not provide incremental value to investors. As a result, the hypothesis that IR is positively associated with firm value in the UK is not supported. One possible reason is that UK firms already had strong reporting practices in place before adopting IR, so investors may not perceive additional value. This is consistent with Brochet et al. (2020), who found that IR tends to add more value in countries where investor communication was historically limited. Another possibility is that investors view IR as a compliance exercise rather than a meaningful strategic tool. Consequently, investors may not deeply engage with the integrated reports or use them to make decisions, thereby limiting their potential to impact firm value. The panel EGLS regression results are shown in Table 3.

In contrast, several control variables exhibit significant associations with firm value. Leverage (LEV), return on assets (ROA) and industry sensitivity (INDSENS) show positive and significant coefficients (0.0353, 3.5251 and 0.2012, respectively; $p-values=0.0000$⁠, 0.0000 and 0.0105 respectively). These results suggest that firm specific characteristics – operational and financial – and industry factors have a significant influence on firm value, independent of IR quality. Conversely, capital growth (CAPEXR) and firm size (LNASSETS) are negatively and significantly associated with firm value, with coefficients of $−2.1146$ and $−0.5920$⁠, and p-values of 0.0000 and 0.0000, respectively. This evidence suggests that investors in the UK do not reward firms for growth in capital expenditures or balance sheets.

In addition, the coefficient for dividend payout (DIV) is positive and significant at the 5% level (⁠$coefficient=0.2595$⁠; $p-value=0.0243$⁠), whereas sales growth (SALESG) is positive and significant at the 10% level (⁠$coefficient=0.0341$⁠; $p-value=0.0779$⁠). The coefficient for loss-making firms (LOSS) is negative and statistically insignificant (⁠$coefficient=−0.0772$⁠; $p-value=0.2559$⁠). This evidence suggests that dividend payouts and sales enhance firm value while loss-making has an insignificant contribution to firm value. Finally, the results show a positive association of industry sensitivity (INDSENS) with firm value (⁠$coefficient=0.2012$⁠; $p-value=0.0105$⁠), suggesting that firms in sensitive industries in the UK are more likely to provide additional voluntary disclosures in their integrated reports, consistent with Dilling and Caykoylu (2019).

Contrary to the hypothesised association, the results of this study showed no significant relationship between IR and firm value when proxied by Tobin’s Q. These findings contradict signalling theory, which suggests that firms issue integrated reports to signal credibility, attract investments and enhance reputation (Menicucci and Paolucci, 2018). In the UK context, it can be argued that providers of financial capital prioritise regulated reports, such as the strategic report mandated by the Financial Reporting Council and the non-financial information statement required by the European Union Directive. This perspective aligns with Hurghiş (2020), who found no association between voluntary IR and firm value in a sample of 63 European firms. Similar results were reported by Wahl et al. (2020), who observed no association between IR and firm value for 167 international firms, and Cooray et al. (2020), who found no association in 83 Sri Lankan firms.

These findings suggest that, in voluntary settings, IR is not as value relevant as expected by the IIRC. McNally et al. (2017) support this view, showing that investors prioritise financial statements over voluntary integrated reports. Similarly, Hsiao and Kelly (2018) found that Taiwanese investors view integrated reports as supplementary rather than primary decision-making tools. Buallay et al. (2020) even reported a negative association between IR and firm value for Islamic banks, arguing that this may result from the banks’ commitment to transparent reporting, which includes both positive and negative outcomes.

The results of this study (with a negative but insignificant IRSCORE coefficient) can also be explained by voluntary disclosure theory, which states that firms will only provide additional disclosures if the benefits outweigh the costs (Demartini and Trucco, 2017). Wahl et al. (2020) argue that firms producing voluntary integrated reports may do so at low cost because they already generate extensive regulatory disclosures. In the UK, firms are required to prepare strategic reports and non-financial statements, which likely take precedence in quality and focus over integrated reports. Consequently, financial capital providers in the UK may value mandatory reports more than voluntary integrated reports.

Consistent with prior studies (e.g. Wahl et al., 2020; Lang et al., 2012), leverage (LEV) and return on assets (ROA) were positively associated with firm value, whereas capital growth (CAPEXR) was negatively associated. These results suggest that firm value in the UK is primarily influenced by financial structure, profitability and operational factors. Leverage and profitability enhance firm value, whereas excessive capital expenditure diminishes it. The positive association between sales growth (SALESG) and firm value, consistent with Lee and Yeo (2016), indicates that investors view high sales growth as a signal of strong market demand, competitiveness and sustained revenue generation. Furthermore, dividends (DIV) were positively associated with firm value, reinforcing findings by Lee and Yeo (2016) that dividend payouts signal growth opportunities and positively influence investor perceptions (Michaels and Grüning, 2017). Industry sensitivity (INDSENS) was also positively associated with firm value, suggesting that firms in sensitive industries may disclose more information in their integrated reports to meet stakeholder expectations (Dilling and Caykoylu, 2019). Conversely, firm size (LNASSETS) and loss-making status (LOSS) had no significant impact on firm value, suggesting that these variables are not predictors of firm value in the UK market.

As a robustness test, the study used the modified Ohlson (1995) model to test the association between IR (IRSCORE) and firm value proxied by market value of equity (MVE) (Delegkos et al., 2022; Grassmann, 2021). The Ohlson (1995) model is a widely accepted valuation model in which the market value of equity (MVE) is a function of the book value of equity (BVE) and earnings (EARN) and other information (Veltri and Silvestri, 2020; De Klerk and De Villiers, 2012). The accounting variables are scaled with the number of shares to mitigate for scaling effects (Cooray et al., 2020). The number of shares outstanding at the end of each financial year is selected as a scaling measure because Barth and Clinch (2009) show that it is a reliable scaling measure. Similar to prior studies on IR, the Ohlson (1995) model also incorporated control variables in the regression analyses (Radwan and Xiongyuan, 2024). Following Permatasari and Narsa (2022), the control variables which were included in the Ohlson model were firm size (LNASSETS), return on equity (ROE), leverage (LEV), industry sensitivity (INDSENS) and loss (LOSS). The study included ROE as a control variable in the model because exorbitant returns on equity can influence the value relevance of earnings and book value of equity (Permatasari and Narsa, 2022).

Using the levels specification, the regression equation is stated as follows:

where:

MVE

= the market value of equity at reporting date scaled by the number of shares at the end of the year;

BVE

= the book value of equity at reporting date divided by the number of shares at the end of the year;

EARN

= the net profit for the year divided by the number of shares at the end of the year; and

ROE

= return on equity, calculated as the net profit for the year divided by the book value of equity.

All other variables are as previously described.

The panel EGLS regression results for equation (2) are shown in Table 4.

Similar to results shown in Table 4, Table 3 the coefficient of the main variable of interest, IRSCORE, is negative but statistically insignificant (⁠$coefficient=−51.6254$⁠; $p-value=0.2452$⁠), indicating no association between IR and the market value of equity. Therefore, the research hypothesis that IR in the UK enhances firm value is still not supported when firm value is proxied by the market value of equity, supporting prior findings. On the other hand, most of the coefficients retained their signs and statistical significance. However, the coefficient for firm size (LNASSETS) (⁠$−48.0563$⁠), although it is still negative, it is now statistically significant in the model with market value equity. This suggests that large firms tend to have lower market valuations relative to their size, possibly, because large firms may be viewed by investors as having fever growth opportunities, thereby limiting their market value relative to smaller, high growth firms. This evidence concurs with Yadav et al. (2022) finding that large size has a negative effect of firm profitability due to inefficiencies associated with large firm size. As investors cherish profitability and growth potential, when size undermines these factors, it is negatively reflected on the firm’s market valuation. The coefficients of accounting variables BVE and EARN are positive and significant at the 1% level (⁠$coefficients=1.1855$ and 2.2617, respectively). These results indicate that both book value of equity and earnings have a significant effect on a firm’s market value, demonstrating the relevance of accounting information in investor decision-making. On the same note, the higher coefficient on earnings (2.2617) than book value (1.1855) suggests that investors place more weight on profitability than book value (a snapshot of past performance). This highlights the importance of financial performance in driving market valuations.

The study examines the association between individual components of IR, namely, guiding principles and content elements and firm value, proxied by TOBINQ. In particular, the study aggregates the total score for guiding principles of the IIRF (2013) (GP) and total score for content elements of the IIRF (2013) (CE) and run the regression analyses. Considering that there is no universal measure of IR; and that different studies in literature have used either guiding principles (for example, Cooray et al., 2020) or content elements (Lee and Yeo, 2016) as a measure of IR, the aim of this test is to evaluate whether the main results hold when splitting the IRSCORE into guiding principles and content elements.

Tables 5 and 6 show the regression results of the analyses. GP is negative and not significant (⁠$coefficient=−0.1319$⁠; $p-value=0.5046$⁠). CE is positive and not significant (⁠$coefficient=0.0780$⁠; $p-value=0.6874$⁠). The results remain robust, i.e. there is no significant impact of IR on firm value, when the IRSCORE is split into its two components, namely, guiding principles and content elements, highlighting consistency across both dimensions of IR quality. A similar study by Barth et al. (2017) tested the value relevance of each guiding principle and each content element, using TOBINQ as a proxy for firm value for a South African sample with a mandatory IR setting. Their study found that the guiding principles all had a positive and significant association with firm value, except for strategic focus and future orientation. Their results for content elements showed that none of the content elements had a positive and significant association with firm value, except for governance. The findings support those of Cooray et al. (2020) who found that IR is not value relevant for Sri Lankan firms with a voluntary IR setting, when using content elements as a measure of IR.

Vitolla et al. (2020) argue that profitable firms are able and willing to devote resources to comprehensive disclosures to demonstrate their ability to maximise shareholder value. Similarly, Frias-Aceituno et al. (2013) assert that profitable firms have more resources to invest in IR than less profitable firms. These arguments stem from signalling theory, which claims that profitable firms will provide more disclosures to distinguish themselves from less profitable firms (Dilling and Caykoylu, 2019). The study therefore repeat our analyses and exclude loss-making firms to determine the robustness of the results. Table 7 presents the regression results. The coefficient of IRSCORE was negative and not significant (⁠$the coefficient=−0.0856$⁠; $p-value=0.7416$⁠). These findings support the main results, that IR is not value relevant in the UK.

IR has travelled a contentious journey (Appiagyei and Donkor, 2024). This study examined whether IR is value relevant in the UK – a voluntary reporting environment and the founding base of the IIRC. Using data from the Top 100 LSE-listed firms between 2011 and 2018 and applying a panel EGLS estimation technique, the findings revealed no statistically significant association between integrated reporting quality (IRSCORE) and firm value. This non-significant relationship remained consistent across two proxies for firm value and alternative estimation methods.

These findings challenge the assumptions of agency theory and signalling theory in voluntary IR contexts. Theoretically, high-quality voluntary disclosure should reduce information asymmetry and lead to improved firm performance. However, this expectation is not supported in the UK setting. The anticipated benefits of IR – greater transparency and enhanced firm value – are not being realised, suggesting that these theories may not apply uniformly across different regulatory environments. In developed markets with strong mandatory disclosure regimes, voluntary IR may hold limited additional signalling value for investors. From a managerial perspective, the findings imply that voluntary IR, in its current form, may not deliver tangible value benefits. Managers should carefully weigh the costs of preparing detailed integrated reports against their impact and may find greater returns in enhancing the quality of mandatory reports, such as strategic reports, or in refining investor-focused communication strategies.

From a policy standpoint, the results offer timely insights into the ongoing global debate around IR adoption. In voluntary environments like the UK, where IR remains optional, its limited market impact raises questions about its effectiveness. If IR is to influence investor behaviour and support long-term value creation, it may need to be mandated or meaningfully incentivised. Policymakers should consider how IR can be better positioned to meet the information needs of capital providers and justify its relevance in capital markets.

The study has a few limitations. The first limitation of this study is that its findings are not generalizable to smaller firms, as the sample was limited to the largest firms listed on the LSE. Future research could address this limitation by extending the analysis to smaller firms, state-owned enterprises and private companies listed on other stock exchanges. Secondly, as highlighted by Healy and Palepu (2001), self-constructed indices, such as the one used in this study, are based on published documents and may omit other relevant information sources, such as conferences, analysts’ meetings or informal communication platforms. This omission could limit the comprehensiveness of the index. To address this, future studies could incorporate additional sources of information into scoring indices, such as those related to the King IV report, to better capture factors that may influence firms’ ability to produce integrated reports.

Despite these limitations, the study makes significant contributions to the literature. Firstly, it develops a disclosure metric that evaluates the level of IR disclosure based on the IIRF, addressing calls by prior studies (e.g. De Villiers et al., 2017) for the creation of such indices. Secondly, this study goes beyond the content elements of the IIRF by including its guiding principles, responding to Velte’s (2021) call to incorporate guiding principles into IR indices. In addition, by examining the value relevance of IR in the UK, this study provides findings that are relevant to regulators in countries with voluntary IR settings. Such findings can help regulators evaluate the utility of IR and conduct cost-benefit analyses for its adoption in their jurisdictions. Finally, considering the UK as the home base of the IIRC, where IR adoption remains voluntary, future research could conduct qualitative analyses to gather insights from financial capital providers on the effect of IR on firm value. Such studies could shed light on the current state of IR adoption and its relevance in the UK, contributing to the IIRC’s vision of making IR a global standard for corporate reporting.