Assurance quality, disclosed connectivity of the capitals and information asymmetry – An interaction analysis for the case of integrated reporting

Purpose - Credibility concerns regarding integrated reports can harm the intended decrease of information asymmetry between a firm and its investors. Therefore, it is crucial to examine whether voluntary third-party assurance enhances the credibility of integrated reports and, thus, decreases information asymmetry. Furthermore, this study aims to investigate the interaction effect between assurance quality and the disclosed connectivity of the capitals, a distinguishing feature of integrated reports. Design/methodology/approach - Content analysis is performed of the 176 assurance statements included in the 269 integrated reports of Forbes Global 2000 firms disclosed from 2013 to 2015 and the 269 integrated reports themselves. Regression analyzes are applied to examine the associations between assurance, the disclosed connectivity of the capitals and information asymmetry. Findings - The presence of an assurance statement in an integrated report significantly decreases information asymmetry. Surprisingly, assurance quality is not significantly associated with information asymmetry. However, an interaction analysis reveals that combining high assurance quality with high disclosed connectivity of the capitals allows a significant decrease in information asymmetry. Research limitations/implications - The paper demonstrates that the connectivity of the capitals of integrated reports and assurance quality are connected and together are associated with information asymmetry. Practical implications - The results imply, both for report preparers and standard setters, that assurance quality is advantageous only when combined with disclosed connectivity of the capitals. Social implications - More information on non-financial information measured by the connectivity of the capitals of integrated reporting has an interaction effect together with assurance quality on information asymmetry. Originality/value - This paper builds on a unique data set derived from the contents of integrated reports and accompanying assurance statements. Furthermore, it extends the integrated reporting literature by investigating the interaction between assurance quality and the disclosed connectivity of the capitals, which had not previously been examined in combination.