Are emerging markets prepared to adopt integrated reporting? evidence from listed companies in Kenya
Injeni, Geoffrey Ikavulu
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The purpose of this study was to establish the extent to which listed companies in emerging markets like Kenya are ready for integrated reporting. An integrated report demonstrates how a company’s strategy, governance, performance, and prospects, in the context of its external environment, leads to the creation of value. The International Integrated Reporting Council (IIRC), working with local regulators like the Capital. Markets Authority (CMA) is encouraging companies to adopt integrated reporting. However, there is no empirical evidence that listed companies in Kenya are making sufficient disclosures to adopt integrated reporting and whether preparers, regulators, and users are open to this innovation in corporate reporting. Also, corporate reporting disclosures are influenced by different country contexts and company factors. Therefore, this study first used self-constructed indices to Analyse the annual reports of 50 companies listed on the NSE from 2010 to 2016 for financial information using International Financial Reporting Standards (IFRS), sustainability, corporate governance, and integrated reporting disclosures. Second, the relationship between the disclosures and the company factors was established using static and dynamic panel data econometric models. Third, a semi-structured questionnaire was used to obtain the perspectives of 20 preparers and semi-structured interviews conducted to obtain the perspectives of 5 regulators and 10 equity analysts. Findings and results reveal opportunities and challenges for the adoption of integrated reporting. First, IFRS, corporate governance and integrated reporting disclosures are high and trending upwards, but sustainability disclosures are low though improving. Size is the only company factor that is positive and significant across all the disclosures. Large companies, with those in telecom and banking sectors, in addition to those that report high sustainability and corporate governance disclosures will likely adopt integrated reporting. However, only 14% of companies analysed had formally adopted integrated reporting by 2016. While regulators and users support the voluntary adoption of integrated reporting, only half of the preparers are for mandatory adoption. Regulators do not expect corporate reporting regulation to be harmonized, while users do not see improvements in the investment process from adopting integrated reporting. Despite improvements in corporate reporting, with stakeholders open to the adoption of integrated reporting, the different country and company features, the varying needs of different stakeholders, remain challenges that need to be overcome. Besides, the three stakeholders consider integrated reporting as a stage in corporate reporting and therefore more research is required to establish the optimal corporate reporting.