Initial trends in corporate disclosures following the introduction of integrated reporting practice in South Africa

Date10 April 2017
Published date10 April 2017
DOIhttps://doi.org/10.1108/JIC-01-2016-0020
Pages373-399
AuthorAbdifatah Ahmed Haji,Mutalib Anifowose
Subject MatterInformation & knowledge management,Knowledge management,HR & organizational behaviour,Organizational structure/dynamics,Accounting & Finance,Accounting/accountancy,Behavioural accounting
Initial trends in corporate
disclosures following the
introduction of integrated
reporting practice in South Africa
Abdifatah Ahmed Haji and Mutalib Anifowose
Department of Accounting, International Islamic University Malaysia,
Kuala Lumpur, Malaysia
Abstract
Purpose The purpose of this paper is to explore the implications of IR reforms in SouthAfrica on corporate
disclosure practices of South African companies. In particular, the authors explore initial trends in corporate
disclosures following the adoption of IR practice.
Design/methodology/approach Drawing from Suchmans (1995 ) framework of strategic and
institutional legitimacy, the authors use content analysis to examine corporate disclosure practices.
The authors conduct industry-specific analyses based on various industries to explore corporate disclosures
practices across and within various industries in South Africa. The evidence is drawn from 246 integrated
reports of large South African companies across six major industries over a three-year period (2011-2013),
a period following the introduction of an apply or explainIR requirement in South Africa.
Findings The results first show a significant increase in the overall amount of corporate disclosures
following the adoption of IR practice. In particular, the authors find that intellectual capital and human capital
disclosure categories have increased over time, with relational capital disclosures showing a decreasing trend.
Second, the authors find that corporate disclosures are increasingly becoming institutionalised over time
across and within industries following the adoption of IR practice. However, companies fail to provide
meaningful disclosures on the interdependencies and trade-offs between the capitals, or components of a
capital following the adoption of IR practice. Overall, the authors find that companies use specific disclosure
strategies to respond to external pressures (strategic legitimacy), and that such disclosure strategies are
increasingly becoming institutionalised across and within various industries (institutional legitimacy).
Practical implications The theoretical implication of this study is that the strategic and institutional
perspectives of legitimacy theory are complementary, rather than conflicting, and dovetail to explain
corporate reporting practices. In terms of practical implications, the adoption of specific reporting
frameworks such as the emerging IR framework is a double-edged sword. On the one hand, such reporting
frameworks could potentially enhance comparability and consistency of organisational reports across and
within industries. On the other hand, corporate reports could become a set of monotonous reports motivated
by considerations other organisational accountability. Hence, to overcome the latter, this study emphasises
the importance of specific accountability metrics and reporting guidelines, rather than the current generic IR
guidelines, to enhance organisational reporting practices.
Originality/value The papers longitudinal analysis of a large sample of integrated reports following the
adoption of IR practice has the potential to inform growing academic research and ongoing policy initiatives
for the emerging IR agenda.
Keywords South Africa, Disclosure, Content analysis, Integrated reporting, Legitimacy theory
Paper type Research paper
1. Introduction
There is a growing recognition of, and interest in, wider organisational reporting practice
which takes into consideration salient non-financial performance indicators (de Villiers, Low
and Samkin, 2014). At the corporate level, there has been a significant increase in the
Journal of Intellectual Capital
Vol. 18 No. 2, 2017
pp. 373-399
© Emerald PublishingLimited
1469-1930
DOI 10.1108/JIC-01-2016-0020
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1469-1930.htm
The paper has benefited from many constructive comments of two anonymous reviewers of this journal.
The authors are sincerely grateful to the many insightful comments and feedback of the reviewers in the
development of this paper. The authors are also very grateful to the editors of this Special Issue, Associate
Professor Rosa Lombardi and Associate Professor John Dumay for their incredible follow up and
encouragement throughout the review process. All remaining errors are a result of the authorsown work.
373
Initial trends in
corporate
disclosures
number of companies incorporating non-financial information in corporate reports over
time (KPMG, 2008, 2011). At the regulatory level, a growing number of countries and
regional zones worldwide have enacted specific regulatory requirements for non-financial
reporting. For example, the UK government introduced a Strategic Report in August 2013,
which requires all public-listed entities to disclose material non-financial information
on their strategy, business model, discussion of main trends and, in particular, information
relating to the environment, employees, social, and the community. Similarly, in September
2014, the EU Council agreed to a directive of non-financial reporting which will, from 2017,
require companies to provide non-financial information on issues such as policies, outcomes
and risk-related aspects (Institute of Internal Auditors (IIA), 2015). Similarly, a number of
countries in Australasia such as Australia, Singapore, Malaysia and Japan have introduced,
or are considering, reforms in non-financial reporting practice (Ahmed Haji, 2013;
de Villiers, Low and Samkin, 2014; Higgins et al., 2014).
The latest, and most significant, trend in organisational reportingpractice, however, is the
integrated reporting (IR) initiative, which was instigated by the South African King III (2009)
Code of Corporate Governance and popularised by the International Integrated Reporting
Council (IIRC). Within the South African context, the IR initiative which builds on a
series numberof corporate governance and reportingdevelopments in King Codeof Corporate
Governance Principles (King I, 1994; King II, 2002; King III, 2009; King IV, 2016) is
conceptualised as a holistic and integrated representation of the companysperformancein
terms of both its finance and its sustainability(King III, 2009, p. 54), with an aim to enable
stakeholders to make a more informed assessment of the economic value of a company
(King III, 2009, p. 12). Ultimately, the introduction of IR requirement in South Africa is
expected to significantly enhance SouthAfricas reputation and competitiveness in the global
financial markets (Atkins et al., 2015).
Building on prior developments in organisational reporting research and practice,
particularly recent multiple capitals frameworks (e.g. MERITUM, 2002; Sigma Project, 2003;
Forum for the Future, 2009), the IR agenda aims to bring together material financial and
non-financial information through the lens of multiple capitals, namely fi nancial,
manufactured, intellectual, human, social and relationship, and natural capital.
The purported difference between the IR initiative and prior organisational reporting
developments is that it focuses on communication of a companysvalue creationstory
through the lens of multiple capitals (International Integrated Reporting Council (IIRC),
2013a). The stated ultimate aim of the IR process is to enhance organisational
accountability and stewardship for the broad base of capitals [] and promote
understanding of their interdependencies(IIRC, 2013a, p. 2).
While the IR initiative is growing rapidly (de Villiers, Low and Samkin, 2014;
Coulson et al., 2015; International Integrated Reporting Council (IIRC), 2016), it continues
to face criticisms from an increasing number of academic scholars on some of its
fundamental premises such as the emphasis on value to investorsand business case
approach (Milne and Gray, 2013; Brown and Dillard, 2014; Flower, 2015; Dumay, 2016).
In particular, Milne and Gray (2013, p. 25) argue that the IIRC framework, in comparison
to prior organisational reporting guidelines (e.g. GRI), is remarkably regressive,asit
provides a very limited and one-sided approach to assessing and reporting on
sustainability issues(Brown and Dillard, 2014, p. 1120). However, given the newness of
IR practice, the criticisms on the IR agenda are largely anecdotal, and there is limited
empirical evidence on whether and how the adoption of IR framework has influenced
organisational reporting practice (Solomon and Maroun, 2012; Wild and van Staden,
2013; Setia et al., 2015). Early empirical studies, despite observing an increase in the
amount of corporate disclosures following the adoption of IR practice, conclude that prior
corporate reporting rhetoric perpetuates post the adoption of IR practice (Solomon and
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18,2

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