Integrated Reporting Capitals Disclosure and Firm Value of Listed Companies in Kenya Versus South Africa: The Role of the Business Model

Abstract

The highly volatile and declining firm value has been observed for companies listed in the Nairobi Securities exchange. This is evidenced by large differences between market-to-book values. Company disclosures in integrated reports have long been linked with firm value. However, integration of non-financial information disclosures with financial information in a single report and how valuable it is to the company and its variant stakeholders has not been awarded a proper evaluation in the African context. While, prior studies in other settings have shown mixed results, this comparative study was intended to evaluate the effect of <IR> capitals disclosure on firm value of listed companies in Kenya versus South Africa, focusing on the role of the business model. Specifically the effect of the six <IR> capitals (financial, manufactured, intellectual, human, social and relationship, and, environmental) disclosure on firm value of listed companies between Kenya and South Africa were assessed. Firm value was proxied by Tobin’s Q. The mediating role of the business model on this associations was also examined. The study was anchored on: stakeholder, legitimacy and agency theories. Positivist research philosophy was adopted and the research design was both exploratory and confirmatory. Secondary data for a sample of 137 companies purposefully selected from a population of 209 firms was obtained from annual audited integrated reports covering the period 2018-2020. Frequency tables were utilized for data presentation, as descriptive statistics described the data. Association of the variables was examined using Pearson correlation. A series of regression models as proposed by Baron and Kenny (1986) mediation testing procedure were used to test the hypothesized relationships. Overall, the findings show <IR> capitals disclosure positively and significantly influence firm value. However, on individual country level, a negative and significant effect of <IR> capitals (financial, manufactured, intellectual and human) disclosure on firm value of companies listed in the NSE was revealed. While, social and relationship capital, and environmental capital disclosures posted a positive and significant association with firm value of listed firms in NSE. Comparatively, South African revealed, a positive and significant effect of all the <IR> capitals disclosure on firm value of listed companies, except for financial capital that show a negative and significant effect. Further, on mediation analysis, the effect of four (4) <IR> capitals (Intellectual, human, social and relationship, and environmental) disclosures on firm value was mediated by the business model in respect to Kenya. Whereas, for South Africa data, the results revealed mediation effect of business model on the association between all the <IR> capitals disclosure and firm value. The study concludes that <IR> capitals are important factors to consider in firm value determination. Further, company business model explains the mechanism through which most of the <IR> capitals disclosure influence firm value. The study recommends for a mandatory adoption of <IR> where voluntary and a logical presentation, review and change of corporate entity business models toward optimal value creation.