Shareholders’ Reaction to Information Content Disclosure of the Integrated Reporting Framework under Interest Conflicts

The present study is assessed the shareholders’ reaction to information content disclosure of the integrated reporting framework under the interest conflicts through the channel of expected return adjustment. The shareholders’ expected return is derived from the capital assets pricing model. The interest conflict caused by agency problems has been measured using the operating expenses to operating revenues ratio as a proxy of agency cost. In addition, the information disclosure index corresponding to the content elements under integrated reporting framework has been measured based on a relevant dimensions checklist. The research population includes 144 firms listed in the Tehran Securities & Exchange during March 2016 till March 2023. The multivariable panel regression models based on firm-year observations focusing on post-event data were used to test research hypotheses. The evidences showed that the agency cost arising from interest conflict between managers and owners causes shareholders to demand higher expected returns. However, firms' effort to disclose information related to content elements of the integrated reporting framework will moderate the shareholders’ expected returns when agency conflicts occur; Hence, the shareholders’ expected return decreases. These findings are consistent with the signaling theory, according to which, although the increase in agency conflicts is a warning sign for firms to demand higher returns from shareholders, but firms' efforts to improve information disclosure aspects based on content elements in the integrated reporting framework is a positive sign, meaning that shareholders can adjust their return expectations.