The impact of integrated reporting quality on the cost of equity capital: evidence from Asia

Purpose This paper aims to examine the impact of the quality of integrated reporting (IR) on the cost of equity capital in the voluntary Asian context. Design/methodology/approach This study uses OLS regression to analyze the impact of IR quality on the cost of equity, using a sample of Asian firms that issued IR and are presented on the International Integrated Reporting Council website from 2015 to 2022. IR quality is evaluated through content analysis. To ensure the robustness of the findings, this study incorporates alternative cost of capital measures, propensity score matching and instrumental variable estimation. Findings IR quality negatively influences the cost of capital. Additional analysis shows that this negative impact is more pronounced in profitable firms and firms with a higher need for external financing. In addition, further analysis shows that the negative impact remains significant during the COVID-19 pandemic period. In addition, the findings reveal that earnings quality and analyst forecast accuracy serve as mediators in the relationship between IR quality and the cost of capital. Practical implications Understanding how IR quality influences the cost of capital is vital for investors, policymakers, regulators and companies. Originality/value This study is unique in concentrating on the effect of the quality of IR on the cost of capital in the voluntary Asian context. This region has received little attention in previous research. This study also adds to the literature by showing the mediating role of earnings quality and analyst forecast accuracy on the relationship between IR quality and cost of capital.