A research framework on the judgement and decision-making of investors using sustainability reports

Abstract

PURPOSE : In general, archival studies suggest that integrated reporting quality (IRQ) is associated with an improved information environment, while experimental evidence suggests that individual investors do not benefit from integrated reporting. This study aims to propose a framework that bridges the mixed findings between the archival and experimental literature on the benefits of integrated reporting. DESIGN/METHODOLOGY/APPROACH : The authors extend the Maines and McDaniel’s (2000) decision-making framework, which is influential in experimental accounting research, to integrated reporting. The authors’ extension of the framework provides a systematic approach to thinking about the key features of integrated reporting that need to be operationalised in an experimental design. The framework explains how the dimensions of performance signals (placement, labelling and linkage) and the dimensions of cognitive costs (isolation, aggregation, display proximity and task proximity) affect users’ acquisition, evaluation and weighting of information contained in financial statements when making investment decisions. The authors translate the principles of the Integrated Reporting Framework (“the Framework”) into these dimensions of performance signals and cognitive costs. FINDINGS : The authors’ review of the archival literature indicates that IRQ is typically measured using a proxy that captures multiple characteristics of integrated reporting as outlined in the Framework. In contrast, in experimental research, integrated reporting is typically operationalised based on a single characteristic, namely, whether sustainability information is presented in a separate report or a single report with financial information. Given that archival data on sustainability reports prepared in accordance with the IFRS Sustainability Disclosure Standards (SDS) and the European Sustainability Reporting Standards (ESRS) is limited, experimental research can provide empirical evidence on the efficacy of these standards in achieving their stated objectives. The authors’ extended judgement and decision-making framework opens various ideas for future research. ORIGINALITY/VALUE : Because many foundational characteristics of integrated reporting are incorporated into the IFRS SDS and the ESRS, the authors use integrated reporting in developing a framework that could guide future research.