Abstract
Purpose
The purpose of the study was:
(i) To develop metrics for assessing the quality of value disclosures in integrated reports
(ii) To assess the quality of value disclosure in <IR>
(iii) To identify areas of value disclosure that could be improved
(iv) To examine the relationship between the quality of value disclosure to providers of financial capital and of non-financial capital and finally;
(v) To assess financial performance over time in relation to value disclosure.
There Design/approach
The research included both qualitative and quantitative analysis, the qualitative analysis was premised on the interpretative paradigm, which has its foundation in examining the interactions between social factors and improving understanding of how social order is produced. This looked at the content or textual analysis of the information conveyed to various shareholders and stakeholders through IRs or value disclosures. This information takes the researcher further to quantitative analysis whereby the quality of the value disclosures were quantified to numerical values. On the quantitative side of the research, a disclosure value measurement technique was devised, and Spearman Rank order correlation analysis was conducted to examine the relationship between the variables. Data from a sample of 18 purposefully selected companies quoted on JSE was used, running from 2019 to 2021 (3year period). This data included growth rate of five financial performance indicators: Revenue, Share-price, Earnings, Enterprise Value and Net Asset.
Findings
This study found that, to a greater extent, investors still rely on financial disclosures instead on non-financial disclosures to make investment decisions. It is notable from
iv
the research findings that there is weak relationship between value disclosures and financial performance, with average correlation of less than 0.39 or 39% across all financial performance indicators. This follows the results that quality of value creation does not significantly translate in sales or earnings growth over the medium term as proved by the following correlation statistics on business earnings in relation to;
i. Providers of Financial Capital (0.26 or 26% correlation)
ii. Providers of Non-Financial Capital (0.37 or 37% correlation)
iii. Overall Score (0.29 or 29% correlation)
Originality The study originated from the growing complexity of the business and regulatory environment which has made it difficult for investors to evaluate financial information on its own without clear accompanying explanations. There is a need to find ways to improve value disclosures and the <IR> Framework.
Practical implication
The devised value disclosure quality measuring technique will help identify areas of improvement. The metric will help in transforming and improving value disclosures by companies, and therefore mitigate the related background problems.