The effect of corprate governance, sustainability governance, and integrated reporting quality on stakeholder value creation

Abstract

It is fundamental for firms to ensure an alignment between shareholder and stakeholder needs because these parties have the power to destroy or enhance the firm’s value-creation capabilities. Despite its importance, the extent to which a firm is creating distinct value for wider stakeholders remains vague in research and practice. Considering that boards are accountable for embedding a culture that protects the stakeholders’ interests, this study examines the effect of corporate governance and sustainability governance on the creation of stakeholder value. As integrated reporting principally emphasizes value creation, this thesis is motivated to assess whether publishing quality integrated reports supports stakeholder value creation. Besides examining the direct impact of integrated reporting quality, this study also considers the rarely explored moderating potential of integrated reporting quality in the relationship between both governance systems and stakeholder value creation. This study is anchored on team production theory and the sample consists of 714 firm-year observations of internationally listed firms that adopt integrated reporting. This study content analysed the integrated reports between 2018 to 2020. The results indicated a significant and positive impact of corporate governance on stakeholder value creation. Nevertheless, sustainability governance was found to have an insignificant influence on stakeholder value creation. The analysis further revealed that integrated reporting quality only had a main effect on stakeholder value creation but not a moderating effect on the governance-stakeholder value creation relationship. Therefore, this study concludes that corporate governance and integrated reporting quality are catalysts for stakeholder value creation. These findings may shed some light on the effect of governance on the creation of value for the broad spectrum of stakeholders. Practically, findings from this study may help verify the value relevance of integrated reporting and firms may also be benefited from the proposed stakeholder value creation index. Besides, regulators might find this study useful particularly in understanding the commitment of firms to fulfilling their promise to create value while apprehending the benefits integrated reporting may offer.