The Examination of the Relationship Between Integrated Reporting and Cost of Capital: Evidence From Borsa Istanbul
Özet
Following the establishment of the International Integrated Reporting Council and with the introduction
of the Integrated Reporting Framework, the debate on the implications of Integrated Reporting (IR) has
begun. Unlike the familiar financial statements based on financial information that companies are
required to publish, IR (currently published on a voluntary basis) includes non-financial information that
is intended to help improve corporate performance.
This study aims to investigate the impact of IR on the cost of funding. Specifically, we look into the
impact that IR leaves on weighted average cost of capital (WACC), cost of equity (COE) and cost of debt
(COD). Impact of the IR will be measured separately and in combination with the Environmental, Social,
and Governance (ESG) scores of the sample companies. We also examine the possible moderating role of
IR on the relationship between ESG scores and cost of funding. Research data is secondary, and it
comprises data from 2015 to 2020 for a total number of 59 companies which are listed on Borsa Istanbul.
To test our hypothesis, we employ panel data analysis.
Our results indicate that WACC is positively associated with ESG scores and IR, while neither ESG nor
IR has a significant impact on COE. When COD is considered, we find that high ESG scores translate
into low cost of debt. We conclude that ESG and IR practices are not perceived positively by investors in
an emerging market yet. Particularly in the capital markets, they appear to be unaware and/or reluctant in
attaching importance on such contemporary practices. However, the moderating impact of IR on the
relationship between ESG and WACC shows that WACC can be reduced when companies also use IR to
better communicate their value creating activities. A similar impact is observed for COD as we find that
IR preparing social-sensitive companies may take the advantage of reduced costs in the debt market.
Apart from the moderating role of IR, we provide evidence that IR has a potential in reducing the cost of
funding among “sustainable” companies
