Board of Directors Effectiveness, Voluntary Integrated Reporting and Cost of Equity: Evidence from OECD Countries

  • Mira Falatifah Universitas Indonesia
  • Ancella Anitawati Hermawan Universitas Indonesia
Keywords: Board of Directors Effectiveness, Integrated Reporting, Cost of Equity


This study aims to examine the effect of the board of directors effectiveness on the level of integrated reporting disclosure. The study also examined the effect of the level of disclosure on integrated reporting on cost of equity. Further, examine the effect of the board of directors effectiveness on cost of equity through the level of disclosure of integrated reporting. Board of directors effectiveness which is a corporate governance structure can be seen from the components of independence, activity, size and competence. Hypothesis testing is carried out by using a Structural Equation Modelling (SEM) model of 373 observations (firm-year) with the sample taken from more than 20 Organization for Economic Co-operation and Development (OECD) countries where the companies listed on The International Integrated Reporting Council (IIRC) during the period 2015-2017. The results of this study evidence that the level of integrated reporting disclosure has an effect on reducing the company cost of equity. However, the result for the influence of the board of directors effectiveness are still mixed. The findings indicate that the effectiveness of the board of directors does not affect the level of integrated reporting disclosure. And there is no significant influence between board of directors effectiveness, level of integrated reporting disclosure and cost of equity. Perhaps one of the factors for this lack of influence is that the sample data in this study are companies that are still voluntarily disclosing their integrated reporting so that the board of directors still does not feel pressured to disclose integrated reporting. And in the end it cannot yet be seen in relation to the decrease in equity costs.


Baboukardos, D., & Rimmel, G. (2016). Value relevance of accounting information under an integrated reporting approach: a research note. Journal of Accounting and Public Policy, 35(4), 437-452.

Barth, M. E., Cahan, S. F., Chen, L., & Venter, E. R. (2017). The economic consequences associated with integrated report quality: Capital market and real effects. Accounting, Organizations and Society, 62(2017), 43–64. doi:10.1016/j.aos.2017.08.005

Berndt, T., Bilolo, C., & Muller, L. (2014, April 28-29). The Future of Integrated Reporting: Analysis and Recommendations. 4th Annual International Conference on Accounting and Finance (AF 2014) (pp. 195-206). Phuket, Thailand.

Blanco, B., Lara, J. M. G., & Tribo, J. A. (2015). Segment disclosure and cost of capital. Journal of Business Finance and Accounting, 42(3-4), 1-45.

Chen, K. C. W., Chen, Z., & Wei, K. C. J. (2009). Legal protection of investors, corporate governance, and the cost of equity capital. Journal of Corporate Finance, 15(3), 273–289. doi: 10.1016/j.jcorpfin.2009.01.001

Cheynel, E. (2009). A theory of voluntary disclosure and cost of capital (Unpublished doctoral dissertation). Carnegie Mellon University, Pittsburgh, Pennsylvania. Retrieved from

Deloitte. (2014). Integrated reporting in the Netherlands. Retrieved from

De Villiers, C., Hsiao, P.-C. K., & Maroun, W. (2017). Developing a conceptual model of influences around integrated reporting, new insights and directions for future research. Meditari Accountancy Research, 25(4), 450-460.

Dias, A., Rodrigues, L. L., & Craig, R. (2017). Corporate Governance Effects on Social Responsibility Disclosures. Australasian Accounting, Business and Finance Journal, 11(2), 3–22. doi:10.14453/aabfj.v11i2.2

Eccles, R. G. & Krzus, M. P. (2010). One Report: Integrated Reporting for a Sustainable Strategy. New York: John Wiley and Sons.

Eccles, R. G., & Serafeim, G. (2014). Corporate and Integrated Reporting: A Functional Perspective. Harvard Business School Working Paper No. 14-049.

Emanuele, C. (2016). Beyond carbon pricing: the role of banking and monetary policy in financing the transition to a low-carbon economy. Ecological Economic, 121, 220-230.

Ernst & Young Global Limited (EY). (2014). EY’s excellence in integrated reporting awards 2014: a survey of integrated report from South Africa’s top 100 JSE-listed companies and top 10 state-owned companies. Retrieved from

Fernando, K. (2018). Value relevance of sustainability reporting information and integrated reporting: evidence from South Africa (Unpublished Master Thesis). Universitas Indonesia, Depok, Indonesia.

Frías-Aceituno, J. V., Rodríguez-Ariza, L., & García-Sánchez, I. M. (2013). Is integrated reporting determined by a country’s legal system? An exploratory study. Journal of Cleaner Production, 44, 45–55. doi:10.1016/j.jclepro.2012.12.006

García-Sánchez, I. M., & Noguera-Gámez, L. (2017). Integrated information and the cost of capital. International Business Review, 26(5), 959–975. doi: 10.1016/j.ibusrev.2017.03.004

Gupta, K., Krishnamurti, C., & Tourani-Rad, A. (2018). Financial Development, Corporate Governance and Cost of Equity Capital. Journal of Contemporary Accounting & Economics, doi: 10.1016/j.jcae.2018.02.001

Haji, A. A., & Anifowose, M. (2016). Audit committee and integrated reporting practice: does internal assurance matter? Managerial Auditing Journal, 31(8/9), 915-948.

Hermawan, A. A. (2011). The Influence of Effective Board of Commissioners and Audit Committee on The Informativeness of Earnings: Evidence From Indonesian Listed Firms. Asia Pacific Journal of Accounting and Finance, 2(1), 1-38.

Hoque, M. E. (2017). Why Company Should Adopt Integrated Reporting. International Journal of Economics and Financial Issues, 7(1), 241-248.

International Integrated Reporting Council (IIRC). (2011). Towards Integrated Reporting: Communicating Value in the 21st Century. Retrieved from https://integrated

International Integrated Reporting Council (IIRC). (2013). The International Integrated Reporting Framework. Retrieved from /2021/01/InternationalIntegratedReportingFramework.pdf

Kilic, M., & Kuzey, C. (2018). Determinants of forward-looking disclosures in integrated reporting. Managerial Auditing Journal, 33(1), 115-144.

Klein, A. (2002). Audit committee, board of directors’ characteristics and earnings management. Journal of Accounting and Economics, 33, 375-400.

Lee, K. W., & Yeo, G. H. H. (2016). The association between integrated reporting and firm valuation. Review of Quantitative Finance and Accounting, 47(4), 1221-1250.

Lintner, J. (1965). Security prices, risk, and maximal gains from diversification. The Journal of Finance, XX(4), 587-615.

Lipton, M., & Lorsch, J. W. (1992). A Modest Proposal for Improved Corporate Governance. The Business Lawyer, 48(1), 59-78.

Mallin, C. A. (2013). Corporate governance (5th ed.). Oxford: Oxford University Press.

Mazzotta, R., & Veltri, S. (2014). The relationship between corporate governance and the cost of equity capital. Evidence from Italian stock exchange. Journal of Management and Governance, 18(2), 419-448.

Melloni, G. (2015). Intellectual capital disclosure in integrated reporting: an impression management analysis. Journal of Intellectual Capital, 16(3), 661-680.

Mossin, J. (1969). Security pricing and investment criteria in competitive markets. The American Economic Review, 59(5), 749-756.

Ng, A. C., & Rezaee, Z. (2015). Business sustainability performance and cost of equity capital. Journal of Corporate Capital, 34, 128-149.

Organisation for Economic Co-operation Development (OECD). (2015). G20/OECD Principles of Corporate Governance. Paris: OECD Publishing.

PricewaterhouseCoopers AG (PWC). (2012). Integrated Reporting: The Future of Corporate Reporting. Retrieved from

PricewaterhouseCoopers Inc (PWC). (2013). The Value Creation Journey: A Survey of JSE Top 40 Companies’ Integrated Reports. Retrieved from assets/pdf/integrated-reporting-august-2013.pdf

Qin, L., & Tan, L. (2007). An Empirical Analysis of The Relation Between Board Independence and Earnings Management. Wuhan University. Science Innovation Academic Frontier, 327-331. Retrieved from /2007qyczhy2z2a4.pdf

Saini, J. S., & Herrmann, D. (2013). Cost of Equity Capital, Segment Disclosure, And Information Asymmetry. Working Paper. Western Michigan University, Oklahoma State University. Sarjono, H., & Julianita, W. (2015). Structural Equation Model (SEM): Sebuah Pengantar, Aplikasi untuk Penelitian Bisnis. Jakarta: Penerbit Salemba Empat.

Schoenfeld, J. (2017). The effect of voluntary disclosure on stock liquidity: New evidence from index funds. Journal of Accounting and Economics, 63(1), 51–74. doi: 10.1016/j.jacceco.2016.10.007

Sharpe, W. F. (1964). Capital asset prices: a theory of market equilibrium under conditions of risk. The Journal of Finance, XIX(3), 425-442.

Teti, E., Dell’Acqua, A., Etro, L., & Resmini, F. (2016). Corporate governance and cost of equity: empirical evidence from Latin American companies. Corporate Governance: The International Journal of Business in Society, 16(5), 831–848. doi: 10.1108/CG-02-2016-0028

Yoo, J. & Semenenko, I. (2012). Segmen Information Disclosure and the Cost of Equity Capital. Journal of Accounting-Business and Management, 19(1), 103-123.

Van Zyl, A. S. (2013). Sustainability and Integrated Reporting in the South African Corporate Sector. International Business and Economics Research Journal, 12(8), 903 – 926.

Velte, P., & Stawinoga, M. (2016). Integrated reporting : The current state of empirical research , limitations and future research implications. Journal of Management Control, 28(3), 275-320. doi: 10.1007/s00187-016-0235-4

Villiers, C. de. (2014). Integrated reporting: Insights, gaps and an agenda for future research. Accounting, Auditing & Accountability Journal, 27(3), 1042-1067.

Wijanto, S. H. (2012). Metode Penelitian Menggunakan Structural Equation Modeling dengan LISREL 9. Depok, Jakarta: Lembaga Penerbit Fakultas Ekonomi Universitas Indonesia.

Wild, S, & Staden, V. C. (2013). Integrated reporting: An initial analysis of early reporters. Paper presented at the Massey University Accounting Research Seminar, Auckland.

Zhou, S., Simnett, R., & Green, W. (2017). Does Integrated Reporting Matter to the Capital Market? 53(1), 94-132. doi: 10.1111/abac.12104

How to Cite
Mira Falatifah, & Ancella Anitawati Hermawan. (2021). Board of Directors Effectiveness, Voluntary Integrated Reporting and Cost of Equity: Evidence from OECD Countries. International Journal of Business and Society, 22(1), 443-460.