Received: 20 August 2019 Revised: 20 October 2019 Accepted: 11 November 2019

DOI: 10.1002/csr.1879

RESEARCH ARTICLE

Board characteristics and integrated reporting quality: an

agency theory perspective

Filippo Vitolla | Nicola Raimo | Michele Rubino

Department of Economics and Management,

University LUM Jean Monnet, Casamassima, Abstract
Italy Integrated reporting is the latest novelty in the corporate reporting field. It is a tool
Correspondence capable of better representing the capacity of companies to create value over time.
Filippo Vitolla, Associate Professor, Faculty of In recent years, attention to this new reporting tool has grown in both professional
Economics, University LUM Jean Monnet,
70010 Casamassima, Italy. and academic fields. However, despite past research that has analysed many aspects
Email: vitolla@lum.it of integrated reporting, the integrated reporting quality and its determinants are still
little explored. This study aims to fill this gap by analysing the effect of board charac-
teristics on integrated reporting quality according to an agency theory approach. The
findings, based on a sample of 134 international firms, show a positive relationship
between the size, independence, diversity, and activity of a board with integrated
reporting quality. This study contributes to enriching literature in this area in various
ways. First, it broadens the scope of application of agency theory; second, it iden-
tifies further internal determinants of integrated reporting quality. This is the first
study that analyses the impact of the characteristics of a board as a determining fac-
tor of integrated reporting quality.

KEYWORDS

agency theory, board of directors, corporate governance, integrated reporting

1 | I N T RO DU CT I O N influences (IIRC, 2013). Integrated thinking facilitates the develop-

This study aims to analyse the impact of board characteristics on inte-
grated reporting quality. Integrated reporting represents the final
frontier of corporate reporting and is faced with the important goal of
improving the efficiency of the information disclosed, allowing for a
better resources allocation. Although integrated reporting is consis-
tent with progress in financial and nonfinancial reporting, it cannot be
considered a mere sum of these two types of reports. In fact, it repre-
sents the capacity of the companies to create value over time (Vitolla,
Raimo, & Rubino, 2019a). By showing the existing interconnections
between nonfinancial and financial information, and among the six
diverse capitals it contains, integrated reporting emphasises orienta-
tion to the future, conciseness, and strategic focus. This capacity of
integrated reporting is clearly connected to integrated thinking. It rep-
resents the assessment by a company of the existing links between
the different business areas and the capitals that the company uses or
ment of integrated choices and actions that take into account the cre-
ation of value over time. The integrated thinking of a company leads
to the publication of reports able to show the links between the dif-
ferent types of information, increasing the level of connectivity. In the
last few years, integrated reporting has received particular attention
in both the professional (EY, 2014; KPMG, 2017) and academic fields
(Velte & Stawinoga, 2017; Vitolla, Raimo, & De Nuccio, 2018). Many
researchers have focused on the study of determinants
(e.g., Gerwanski, Kordsachia, & Velte, 2018; Jensen & Berg, 2012) and
on the effects of the adoption of this reporting tool (e.g., Barth,
Cahan, Chen, & Venter, 2017; Esch, Schnellbächer, & Wald, 2019;
García-Sánchez & Noguera-Gámez, 2011; Vitolla & Raimo, 2018;
Vitolla, Salvi, Raimo, Petruzzella, & Rubino 2019c). However, one
aspect still little explored by the literature is represented by integrated
reporting quality (Pistoni, Songini, & Bavagnoli, 2006). In fact,
although studies on the subject of integrated reporting have grown

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2 VITOLLA ET AL.
considerably in recent years, only a few contributions have analysed
integrated reporting quality. Most of these studies have also focused
on the effects; therefore, the contributions concerning the determi-
nants of integrated reporting quality are limited.
This significant gap in literature makes it necessary to analyse the
key factors that can explain integrated reporting quality. From this
perspective, the analysis is fundamental. In fact, as demonstrated by
Vitolla et al. (2019c), the determinants of the adoption of this practice
are different with respect to the determinants of quality, which repre-
sent an aspect that goes beyond the simple implementation of a
reporting tool.
In the context of the determinants, this study investigates the role
of the board characteristics. In fact, directors have an important role
in companies' communication choices with stakeholders (Healy, 2002;
Kostant, 1999; Perrini, 2006). The board should pay attention to the
satisfaction of stakeholders' interests (Hill & Jones, 1992; Shankman,
1999) and be accountable to them (Solomon, 1999). In this perspec-
tive, according to agency theory, developed by Jensen and Meckling
(1976), the board represents a control mechanism useful for aligning
the interests of managers and shareholders both in relation to finan-
cial information (Brennan & Solomon, 2008; Bushman & Smith, 2001;
Healy, Hutton, & Palepu, 1999; Healy & Palepu, 2001) and to non-
financial information (Gray, Owen, & Maunders, 1987; Rasche &
Esser, 2006; Unerman et al., 2007; Prado-Lorenzo, Gallego-Alvarez, &
Garcia-Sanchez, 2009; Prado-Lorenzo & Garcia-Sanchez, 2010). This
responsibility can therefore also be extended to integrated reporting
as a tool that includes both nonfinancial and financial information.
However, in this perspective, it is fundamental that the board not only
pushes managers to adopt integrated reporting, which could also rep-
resent a mere formal choice, but checks to ensure that high quality
data is provided to reduce asymmetric information and, consequently,
agency costs. In this regard, some board characteristics, such as size,
independence, level of activity, and diversity could represent a means
to increase the level of control over the work of managers, improving
the quality of the information provided.
Despite the importance of the topic, the characteristics of the
board have never been studied in relation to integrated reporting
quality. Therefore, this study aims to bridge this gap, investigating the
relationships existing between some characteristics of the board (size,
independence, activity level, and diversity) and integrated reporting
quality.
The rest of this article is organized as follows: Section 2 presents
the theoretical background; Section 3 analyses relevant literature;
Section 4 presents the study's hypotheses, and Section 5 shows the
research methodology. Sections 6–7 present and discuss the results,
and Section 8 draws conclusions.
2 | T H E O R E T I C A L BA C K G R O U N D
In line with the contributions related to the relationship between
board characteristics and disclosure (Al-Shammari & Al-Sultan, 2010;
Barako, Hancock, & Izan, 2006; Donnelly & Mulcahy, 2008; Frias-
Aceituno et al., 2013a), the theoretical basis of this study is represen-
ted by agency theory. In fact, agency theory explains the rationale
behind managers' voluntary disclosure of information (Chow & Wong-
Boren, 1987; Cooke, 1989, 1992; Firth, 1980; Hossain, Perera, &
Rahman, 1995). According to agency theory, managers act on behalf
of the shareholders (Eisenhardt, 1989; Fox, 1984; Jensen & Meckling,
1976; Ross, 1973). The separation between management and owner-
ship within the company entails costs attributable to three main cate-
gories: monitoring, bonding, and residual loss (Jensen & Meckling,
1976). The monitoring expenditures are those incurred by the princi-
pal to prevent the actions of the agent that can cause him harm
(Jensen & Meckling, 1976). In fact, the principal will use monitoring
tools to try to contain the consequences of any opportunistic behav-
iour of the agent and to implement incentive systems to reduce the
divergence of interests. Bonding costs are those expenses incurred in
order to prevent the agent from taking action contrary to the princi-
pal's interests (Jensen & Meckling, 1976). Finally, the last type of cost
is the residual loss that is derived from the suboptimization by the
agent of the welfare maximization objective (Jensen & Meckling,
1976). The sum of monitoring costs, bonding costs, and residual loss
represents agency costs (Jensen & Meckling, 1976). In the context of
companies, these derive mainly from the presence of information
asymmetry between shareholders and managers (Barako et al., 2006).
In fact, managers, dealing directly with the business activity, have an
important information advantage whereas shareholders face impor-
tant moral dilemmas as they cannot accurately assess the choices of
managers (Barako et al., 2006). In this context of information asymme-
try, management can easily act in a way that is in contrast with the
interests of shareholders (Donnelly & Mulcahy, 2008). Management
aims to maximise the current value of the firm (and therefore of its
remuneration and fame), whereas shareholders are interested in the
long-term value of the firm (Healy & Palepu, 2001). The resulting cir-
cumstance is to the detriment of the valuation of the economic capital
of the firm (Healy & Palepu, 2001).
A formal contract, in theory, is a tool that could mitigate the
agency problem, as formal contracts tend to align the interests of
shareholders with those of managers (Barako et al., 2006; Healy &
Palepu, 2001). However, this hypothesis is oftentimes impractical for
companies to apply because contracts are often incomplete. Disclo-
sure represents another possible way to reduce information asymme-
try by harmonizing the interests of shareholders and managers and
consequently reducing agency costs (Bozzolan, 2005; Healy & Palepu,
2001; Watson, Shrives, & Marston, 2004).
In this perspective, for disclosure to fulfil the function of reducing
information asymmetry, an adequate level of control is required. A pri-
mary control mechanism is represented by the board, which is called
to supervise the work of the management including in matters of dis-
closure (Donnelly & Mulcahy, 2008). In this regard, Stout (2003) con-
siders the monitoring function to be the main reason the shareholders
rely on the board for the supervision of their investments. Hermalin
and Weisbach (2003) identify the board as an endogenously deter-
mined mechanism aimed at reducing agency costs. Therefore, the
board represents a monitoring and control mechanism aimed at
VITOLLA ET AL.
analysing and evaluating the work of top management and ensuring
profit maximization for shareholders (Donnelly & Mulcahy, 2008). It
also represents a defence against inefficient business management
(Schellenger & Wood, 1991).
Based on this analysis, control by the board represents a means
to promote the dissemination of higher quality disclosure, which
decreases information asymmetry and resulting agency problems.
However, for the board to effectively carry out its monitoring task, it
must possess specific characteristics.
In this perspective, the analysis of the characteristics of a board
able to guarantee high-quality integrated reports represents the aim
of this study. In line with other contributions on the subject (Frias-
Aceituno et al., 2013a), this study assumes a complementary relation-
ship (Jensen & Meckling, 1976) between some board characteristics
(size, independence, level of activity and diversity) and the transpar-
ency of the company, shown, in this case, through the dissemination
of high-quality integrated reports.
3 | LITERATURE REVIEW
The association between corporate governance and integrated
reporting has been the subject of several studies. Lai, Melloni, and
Stacchezzini (2016) and Melloni, Caglio, and Perego (2017) both stud-
ied the effect of governance performance, respectively, on the
choices to adopt an integrated report and on the conciseness, com-
pleteness, and balance of the information it contains. In this regard,
Lai et al. (2016) found a positive association between governance per-
formance and the adoption of this reporting tool, whereas Melloni
et al. (2017) showed the absence of relationships between gover-
nance performance and the conciseness, completeness, and balance
of information.
Going beyond the role of governance performance, past studies
analysed the role of the board, the audit committee, and the sustain-
ability committee.
The board of directors is not only responsible for maximizing the
interests of the shareholders but also has the task of controlling the
work of the managers (Ben-Amar & McIlkenny, 2015). In this perspec-
tive, some characteristics of the board favour the efficiency of this
body and can influence the top management's choices in the field of
integrated reporting (Gerwanski et al., 2019). An important character-
istic of the board, which is widely studied, is diversity. Previously, lit-
erature had shown the importance of board diversity in relation to
financial, sustainability, and voluntary disclosures (Abeysekera, 2010;
McGuinness, Vieito, & Wang, 2017; Rupley, Brown, & Marshall,
2012). Therefore, some researchers have extended the scope of these
studies to integrated reporting. In this regard, some studies have
analysed the impact of gender diversity (Alfiero, Cane, Doronzo, &
Esposito, 2017; Fasan & Mio, 2017; Frias-Aceituno et al., 2013a; Gar-
cía-Sánchez & Noguera-Gámez, 2018; Gerwanski et al., 2019; Kilic &
Kuzey, 2018), whereas others examined foreign diversity (Frias-
Aceituno et al., 2013a) and age diversity (Alfiero et al., 2017). In rela-
tion to gender diversity, Frias-Aceituno et al. (2013a) found that the
3
presence of women on the board favours the adoption of integrated
reporting. Gerwanski et al. (2019) showed how gender diversity
increases materiality disclosure quality in the context of integrated
reporting, whereas Kilic and Kuzey (2018) found that gender diversity
is positively related to forward-looking disclosures in integrated
reporting. Fasan and Mio (2017) have instead found an opposite result
whereby the presence of women on a board reduces the materiality
disclosure quality. In relation to foreign diversity, Frias-Aceituno et al.
(2013a) highlighted the absence of associations between the presence
of foreign members on the board and the adoption of integrated
reporting, whereas, in relation to age diversity, Alfiero et al. (2017)
found that older members have a negative effect on decisions to com-
pile an integrated report.
Other studies have analysed the effects of board independence
(Fasan & Mio, 2017; Frias-Aceituno et al., 2013a; Kilic & Kuzey, 2018;
Stacchezzini, Melloni, & Lai, 2016). In this regard, Stacchezzini et al.
(2016) showed that companies with less independent boards are more
likely to provide information regarding sustainability actions than
information related to sustainability performance within integrated
reports.
Based on the concept that a larger board size and a greater fre-
quency of meetings, favouring confrontation and dialogue, improve
the quality of decisions, some researchers have studied the impact of
board size (Alfiero et al., 2017; Fasan & Mio, 2017; Frias-Aceituno
et al., 2013a; García-Sánchez & Noguera-Gámez, 2018; Kilic & Kuzey,
2018) and of the board activity (Fasan & Mio, 2017; Frias-Aceituno
et al., 2013a) on integrated reporting. Frias-Aceituno et al. (2013a)
and Alfiero et al. (2017) showed that the largest boards favour the
adoption of integrated reporting whereas Fasan and Mio (2017) found
a negative relationship between the size of the board and the materi-
ality disclosure quality. In relation to the board activity, there is no evi-
dence that the number of annual board meetings significantly impacts
integrated reporting adoption.
The role of the audit committee is no longer connected only to
the traditional internal control and financial reporting processes but is
also opening up to other areas such as nonfinancial reporting and risk
management (Ahmed Haji & Anifowose, 2016). For this reason, the
audit committee seems to play a central role in integrated reporting.
However, only two contributions have studied the role of the audit
committee in integrated reporting. Velte (2017) highlighted how the
financial and sustainability expertise of the audit committee improves
the readability of the integrated report, and Ahmed Haji and
Anifowose (2016) similarly found that both the effectiveness and the
authority of the audit committee and the number of annual meetings
increase the extent of the information contained in the integrated
report and the level of alignment with the International Integrated
Reporting Council (IIRC) principles.
Finally, the existence of a sustainability committee should encour-
age the development of social and environmental initiatives within
companies. Ahmed Haji and Anifowose (2016) have shown that the
existence of a sustainability committee favours the inclusion of more
information in integrated reports and increases the level of compli-
ance with the IIRC framework.
4 VITOLLA ET AL.
The analysis of existing literature indicates the absence of contri-
butions aimed at analysing the relationship between board character-
istics and integrated reporting quality. Indeed, no contribution
analyses this specific topic, which represents the theme of this study.
4 | HYPOTHESES DEVELOPMENT
Our study examines the influence of board characteristics on inte-
grated reporting quality. Specifically, we examine the impact of the
following elements: board size, board independence, board diversity,
and board activity.
The main actions carried out by the board are those of controlling
and monitoring the work of management (Fama & Jensen, 1983).
Gandía (2008) highlights how a board made up of a larger number of
members favours the effectiveness and efficiency of these functions,
consequently increasing both the level of transparency of the com-
pany and the disclosure of information by top management. Adams,
Almeida, and Ferreira (2005) suggest that larger boards, presenting a
greater diversity of experiences and opinions, favour the ability to
monitor and improve the disclosure choices of the company. Hidalgo,
García-Meca, and Martínez (2011) underline how larger board sizes
increase the pool of skills and resources. These resources and skills,
combined with the diversity of experiences and opinions that charac-
terize large boards, according to Gallego-Alvarez, Manuel Prado-
Lorenzo, and García-Sánchez (2011) and García-Sanchez et al. (2011),
are necessary to successfully carry out supervisory functions and
encourage the dissemination of more information. Boards of larger
sizes can therefore offer further perspectives and a wider range of
solutions to allow the achievement of investors' objectives
(Eisenhardt & Bourgeois, 1988). Integrated reporting, due to its multi-
dimensional nature, requires input from members with different back-
grounds and skills (Alfiero et al., 2017; Frias-Aceituno et al., 2013a).
The development of a high-quality integrated report, able to show the
existing interconnections between the different types of information,
requires a continuous dialogue and a comparison between different
members of the board. This comparison between members with vary-
ing backgrounds is more evident on larger boards of directors. There-
fore, we introduce the following hypothesis:
H1. Ceteris paribus, integrated reporting quality is positively associated
with board size.
The effectiveness of corporate governance to reduce agency
costs depends significantly on the composition of the board (Frias-
Aceituno et al., 2013a). A board with a higher number of nonexecutive
members is able to monitor management more efficiently (Liao, Luo, &
Tang, 2015), as nonexecutive members are not directly involved in
business activity (de Villiers, Naiker, & Van Staden, 2011) and do not
have a position within the company (Donnelly & Mulcahy, 2008).
Nonexecutive members are therefore able to offer more objective
feedback in relation to company management and performance (Liao
et al., 2015). Furthermore, nonexecutive board members have no ties
to the CEOs in that their careers do not depend on them (Core,
Holthausen, & Larcker, 1999) and have less interest in colluding with
executive members (Carter, Simkins, & Simpson, 2003; Eng & Mak,
2003). Therefore, a greater percentage of nonexecutive members
leads to more effective monitoring by the board (Liao et al., 2015).
Executive members and nonexecutive members have different values,
incentives, and objectives (Donnelly & Mulcahy, 2008; Post,
Rahman, & Rubow, 2011). García-Sanchez et al. (2011) underline how
nonexecutive members have a greater interest in guaranteeing the
achievement of objectives and correct behaviour by the company.
This promotes the disclosure of higher quality information as this
information directly impacts the experience and reputation of non-
executive members (Fama & Jensen, 1983). Furthermore, non-
executive members are more likely to respond to a request for
information (García-Sánchez et al., 2011) than executive members
because their actions are not related to those of competitors (Prado-
Lorenzo & Garcia-Sanchez, 2010). In this regard, Wang and Dewhirst
(2002) highlight the strong stakeholder orientation of nonexecutive
members, connected to their different nature and the absence of
financial stakes in the company. The stakeholder orientation that dis-
tinguishes the nonexecutive members allows for a balance between
the expectations of the company and those of stakeholders, going
beyond the sole interests of shareholders (Johnson & Greening, 1999;
Michelon & Parbonetti, 2012). This inevitably leads to an improve-
ment in the quality of the information provided and, in the context of
integrated reporting, greater attention to the existing connectivity
between the information, useful for promoting understanding by the
recipients. Therefore, we introduce the following hypothesis:
H2. Ceteris paribus, integrated reporting quality is positively associated
with board independence.
Board diversity can be defined as the difference of the character-
istics of its members (Robinson & Dechant, 1997). Post et al. (2011)
highlight how board diversity increases the probability that different
perspectives, contexts, and ideas are taken into consideration in the
decision-making process. Group diversity can lead to social category
diversity, informational diversity, value diversity, or a combination
(Jehn, Northcraft, & Neale, 1999). Within an organization, diversity
promotes problem-solving, and the development of relationships, and
increases the effectiveness of leadership (Robinson & Dechant, 1997).
One aspect of diversity that is much debated in literature is gen-
der diversity (Alfiero et al., 2017; Frias-Aceituno et al., 2013a). The
importance of this aspect of diversity is due to the social and cultural
differences between men and women (Liao et al., 2015). In this regard,
some studies show differences in terms of communication style, per-
sonality, skills and professional experience, and educational back-
ground between men and women (Buss, 2005; Feingold, 1994). Other
studies have instead stressed an important difference in values
(Hofstede, Hofstede, & Minkov, 2010). Huse and Solberg (2006) dem-
onstrate how women are more diligent, committed, and involved in
their activities and how they favour the creation of a good climate
within the board. Coffey and Wang (1998) argue that female members
VITOLLA ET AL.
are less oriented towards personal goals and, therefore, improve the
process of decision-making and increase the board effectiveness.
Gibbins, Richardson, and Waterhouse (1990) add that gender diversity
can explain the differences in disclosure practices between different
companies. In this regard, gender diversity mainly favours the devel-
opment of sustainable initiatives, also related to disclosure (Barako &
Brown, 2008; Bear, Rahman, & Post, 2010; Webb, 2003), due to
women's values oriented towards caring for the weak, improving qual-
ity of life and the environment, and drawing upon their role as
mothers (Betz, O'Connell, & Shepard, 1989; Hofstede et al., 1992).
This involves the adoption of actions and criteria more in line with
ethics than those adopted by men (Harris, 1990). The values of
women and their behavioural models are inevitably linked to greater
transparency of the company, especially in terms of sustainability
(Barako & Brown, 2008; Prado-Lorenzo & Garcia-Sanchez, 2010;
Frias-Aceituno et al., 2013a). In fact, in their monitoring activities of
managers, women pay particular attention to aspects connected to
sustainability. In the integrated reporting context, greater attention by
women members to sustainable issues could inevitably lead the com-
pany to improve the quality of the integrated report. Therefore, we
introduce the following hypothesis:
H3. Ceteris paribus, integrated reporting quality is positively associated
with board diversity.
The board's ability to monitor managers' actions is also connected
to board activity (Frias-Aceituno et al., 2013a). Lipton and Lorsch
(1992) show that boards that set a greater number of meetings are
more diligent and better meet general stakeholder interests. Focusing
on the association between board activity and the dissemination of
information, Lipton and Lorsch (1992) add that a more active board
involves the dissemination of greater levels of information needed to
inform shareholders and stakeholders. Xie, Davidson, and DaDalt
(2003) added that the increased activity of the board, in terms of
annual meetings, entails better supervision and less manipulation of
corporate earnings. Kanagaretnam, Lobo, and Whalen (2007), instead,
underline a reduction of information asymmetry in quarterly earnings
announcements derived from increased board activity. The connectiv-
ity of information, which represents the cardinal principle of inte-
grated reporting, requires greater monitoring by the board and
therefore requires a greater number of meetings (Frias-Aceituno et al.,
2013a). The increased attention and increased monitoring by the
board could inevitably lead the company to improve the quality of the
integrated report. Therefore, we introduce the following hypothesis:
H4: Ceteris paribus, integrated reporting quality is positively asso-
ciated with board activity.
5 | RESEARCH METHODOLOGY
5.1 | Sample
The sample of our study is composed of 134 international firms that
adopt integrated reporting. To find the integrated reports, we used
the sections “<IR> Reporters” and “Leading Practices” of the IIRC
5
website. This ensures that the reports have been prepared in compli-
ance with the IIRC framework. The Leading Practices section contains
reports that represent “best practices” whereas the <IR> Reporters
section contains a list of companies that have adopted integrated
reporting. The alternation of the two sources guarantees a sample bal-
ance between higher quality reports and presumably lower quality
reports. The integrated reports were selected randomly. The sampled
companies belong to 5 different continents and 26 different countries
and operate in 15 different sectors. We conducted tests for normality.
The statistical analyses (Kolmogorov–Smirnov tests, skewness, and
kurtosis values) were used. The findings show that our data are nor-
mally distributed.
5.2 | Model specification
To test the relationship between board characteristics and integrated
reporting quality, we use a regression model. Specifically, we use a
cross section and not a panel analysis because, as stated by Bavagnoli,
Songini, Pistoni, and Minutiello (2018), there is not enough variability
in the dependent variables and in some of the independent variables
for the individual firms over time. The model of analysis that we pro-
pose is reflected in the following equation:
Model 1:
IRQ = β0 + β1 BOARDSIZE + β2 BOARDIND + β3 BOARDDIV
+ β4 BOARDACT + β5 CSRCOM + β6 ROE + β7 SIZE
+ β8 AGE + β9 ENVSEN + ε:
5.3 | Variables
Corporate disclosure can be defined as the global flow of information
provided by a company that is useful to meet the needs and require-
ments of stakeholders and guide investment decisions (Garegnani
et al., 2015). It represents a concept without inherent characteristics
that enable a user to define its quality (Wallace & Naser, 1995). There-
fore, in light of this, the disclosure quality represents a difficult con-
cept to define (Vitolla, Raimo, Rubino, & Garzoni, 2019). Imhoff (1992,
p.101) defined the notion of disclosure quality as an evaluator's “over-
all subjective assessment of the relevance, reliability and comparability
of the accounting data produced by the reporting entity”. A common
mistake is to confuse the disclosure quality with the amount of infor-
mation provided (Gray & Vint, 1995; Deegan & Gordon, 1996;
Unerman, 2000). The quantity of information provided, in fact, does
not represent an adequate proxy for the quality or excellence of dis-
closure, as it ignores the possibility that corporate documents may be
incomplete or insignificant (Garegnani et al., 2015). Therefore, a care-
ful evaluation of the disclosure quality must focus not only on the
content (Unerman, 2000) but also on the form, style, themes, and
range of issues (Hackston & Milne, 1996; Hammond & Miles, 2004;
Garegnani et al, 2015).
6 VITOLLA ET AL.
To measure integrated reporting quality (IRQ), which represents
our dependent variable, we use the scoreboard devised by Pistoni
et al. (2018). We opted for a scoreboard focused directly on inte-
grated reporting with respect to others focused on other types of
nonfinancial disclosures (Dong et al., 2014; Liesen et al., 2015). Fur-
thermore, we chose this scoreboard because, unlike others, (Bavagnoli
et al., 2018; Pavlopoulos et al., 2019) evaluates quality not only in
terms of content. In fact, the adopted scoreboard, in order to measure
the integrated reporting quality, analyses four different areas: content,
background, assurance and reliability, and form. These four areas
derive from the quality attributes identified by Hammond and Miles
(2004). The scoreboard devised by Pistoni et al. (2018) adapts these
attributes and classified them in the areas mentioned above in relation
to integrated reporting.
The content was evaluated based on compliance with the IIRC
framework, which includes eight elements (organizational overview
and external environment, strategy and resource allocation, outlook,
performance, governance, basis of presentation, risks and opportuni-
ties, and business model) and two fundamental concepts (capitals and
value creation process). The adopted scoreboard assigns a score
between 0 (absence) and 5 (very high quality) to each of the 10 ele-
ments. Therefore, this area has a maximum score of 50.
The background was evaluated by determining whether the
reports presented an introduction that outlined the following informa-
tion: objectives, motivations behind the adoption, manager responsi-
ble for the process, key consumers, title, compliance with disclosure
standards, and level of CEO commitment. The adopted scoreboard
assigns a score of 0 in the case of absence of the item and a score of
1 in the opposite case. Therefore, this area has a maximum score of 7.
Assurance and reliability was evaluated based on whether the
company conducted an internal audit and/or a third party verification
and whether the organization received awards and acknowledgments
to incentivize this practice. The adopted scoreboard assigns a score of
0 in the case of absence of the item and a score of 1 in the opposite
case. Therefore, this area has a maximum score of 3.
Finally, the form was evaluated by reviewing the report summary,
including accessibility, number of pages and readability and clarity.
The adopted scoreboard assigns a score between 0 (absence) and
5 (very high quality) to each of these three elements. Therefore, this
area has a maximum score of 15.
The quality score represents the sum of the scores of these four
areas. Therefore, each report can have a maximum score of 75.
To increase the reliability of the data and address the subjectivity
typical of applied content analysis techniques, three researchers iden-
tified and followed a specific detection procedure (Krippendorff,
1980). First, the three researchers conducted a joint pilot test on the
integrated reports of five companies. Subsequently, the three
researchers independently analysed ten additional documents. Com-
parative results indicate good data reliability.
Independent variables are defined as follows: board size
(BOARDSIZE) is measured by the number of directors on the board
(Frias-Aceituno et al., 2013a; Alfiero et al., 2017); board independence
(BOARDIND) is measured as the percentage of nonexecutive
directors within the board (De Andres, Azofra, & Lopez, 2005; Frias-
Aceituno et al., 2013a); board diversity (BOARDDIV) is measured by
the percentage of women on the board (Frias-Aceituno et al., 2013a;
Liao et al., 2015; Alfiero et al., 2017); and board activity (BOARDACT)
is measured by the number of annual meetings of the board of direc-
tors (Frias-Aceituno et al., 2013a).
To improve the goodness of the regression model, some control
variables have been added.
First, we checked for the existence of a corporate social responsi-
bility/sustainability committee (CSRCOM). This variable takes a value
of 1 if the company requires the presence of a corporate social
responsibility or sustainability committee or 0 otherwise. Ahmed Haji
and Anifowose (2016) found that the existence of a sustainability
committee favours the inclusion of more information in integrated
reports and increases the level of compliance with the IIRC frame-
work, so we expect it to have a positive impact on integrated
reporting quality.
Return on equity (ROE) data was also included in the regression
model as a firm's financial performance is an important element to
determine the quality of its integrated reports, considering the high
cost of preparation. Profitability affects the choices of companies that
can decide to allocate different amounts of resources to the inte-
grated report drafting process.
Firm size (SIZE), computed as natural logarithm of total assets,
was included in the model as a control variable. In fact, previous stud-
ies indicate the relationship between company size and integrated
reporting adoption (Frias-Aceituno, Rodríguez-Ariza, & Garcia-
Sánchez, 2014; Ghani, Jamal, Puspitasari, & Gunardi, 2018).
The variable age (AGE) represents a proxy for the stability of the
company. It has been calculated as the number of years since the
founding of the company until the end of 2018. In this perspective,
older firms are expected to have higher quality integrated reports than
younger firms.
Finally, environmental sensitivity (ENVSEN) is a dummy variable
that represents the environmental sensitivity of the industry in which
the firm operates. This variable takes a value of 1 if the company's
activities have an important impact on the environment and
0 otherwise.
The data relating to the independent variables and the control
variables were downloaded from the Bloomberg database.
6 | RE SU LT S
6.1 | Descriptive analysis and correlation analysis
The first columns of Table 1 provide descriptive statistics. The depen-
dent variable, represented by the quality of integrated reports (IRQ)
has an average value of 57.21, which shows a fairly high quality
among the reports analysed. The firms in the sample have an average
board size of about 12 members. The average percentage of non-
executive members within the board is around 75%, whereas, on
average, women within the board represent around 23%. The annual
VITOLLA ET AL. 7

board meetings for the companies analysed are on average 12. About
ENVSEN 50% of the companies analysed envisage the presence of a CSR com-
mittee, demonstrating the good balance of the sample. Furthermore,
the companies in the sample have an average ROE of 16.68%. The

1
average age of the analysed companies is around 63 years, and about
50% of them operate in a sector with a high environmental impact.
AGE

.093
We explore the relationship between the characteristics of the

1
board and integrated reporting quality through a Pearson rank correla-
tion. The second part of Table 1 shows the results. They show no evi-

−.057
SIZE

.105
dence of an unacceptable level of multicollinearity. In fact, the highest
1
correlation coefficient is.354 for CSRCOM and IRQ. According to Far-
rar and Glauber (1967), harmful levels of multicollinearity should not
−.066
ROE

.044

.022
exist until the correlation coefficient reaches ±.8 or ±.9. In support of
1

this, we have evaluated the potential multicollinearity among the vari-

ables also using a variance inflator factor (VIF) analysis. VIFs vary
CSRCOM

between a low value of 1.03 to a high value of 1.29. The effect of

.179**

multicollinearity is not significant if all VIFs are less than 10 (Myers,

.010

.026
.022
1

1990). Therefore, multicollinearity does not represent a problem in

the interpretation of our findings.
BOARDACT

−.061

−.089

6.2 | Basic analysis

.059

.116

.057
1

We conducted a linear multiple regression to test the hypotheses of

BOARDDIV

this study. Table 2 presents the findings of the regression between

the characteristics of the board and integrated reporting quality. The
−.004

−.011
.028
.059
.090
.107

adjusted R2 is.313. This shows that the regression model can explain
1

about 31.3% of the variance in the dependent variable.

The findings verify Hypothesis 1 (H1). Board size (BOARDSIZE)
BOARDIND

shows a positive and significant association with integrated reporting

.350***

quality (IRQ) at p = .030. This result suggests that companies with

−.006
.164*
.158*
.147*
.090

.115

larger boards provide higher quality integrated reports.

1
BOARDSIZE

TABLE 2 Basic analysis

.236***

.339***
.194**
−.123
.162*
.137
.093

.101

Variables Coefficient Standard error p-value

1
Means, standard deviations and correlations

Cons 34.791 3.744 .000***

BOARDSIZE 0.281 0.128 .030**
.349***
.320***
.263***
.261***
.354***

.346***

BOARDIND 0.050 0.026 .060*

.060

.249
.075
IRQ
1

BOARDDIV 0.103 0.045 .025**

BOARDACT 0.105 0.048 .032**
23.18
12.99
11.95

18.06

41.75

CSRCOM 3.931 1.162 .001***

7.73
4.90

0.49

2.63

0.50
SD

Abbreviation: SD, standard deviation.

ROE 0.017 0.031 .575

SIZE 0.561 0.229 .016**
***Significant at the 1% level.

*Significant at the 10% level.

**Significant at the 5% level.
Mean
57.21
12.50
75.52
23.76
12.82

16.68
15.81
63.79

AGE −0.011 0.013 .417

0.58

0.52

ENVSEN 0.942 1.126 .404

n 134
BOARDSIZE

BOARDACT
BOARDIND
BOARDDIV

Note: n = 134.

Adjusted R2 .313
CSRCOM
Variables
TABLE 1

ENVSEN

***Significant at the 1% level.

ROE
SIZE
AGE
IRQ

**Significant at the 5% level.

*Significant at the 10% level.
8 VITOLLA ET AL.

The findings also verify Hypothesis 2 (H2). Board independence TABLE 3 Robustness analysis
(BOARDIND) shows a positive and significant relationship with inte- Variables Coefficient Standard error p-value
grated reporting quality (IRQ) at p = .060. This result shows that the
Cons 31.144 3.918 .000***
presence of a greater number of nonexecutive members on the board
BOARDSIZE 0.232 0.126 .069*
of directors favours the publication of higher quality integrated
BOARDIND 0.056 0.026 .033**
reports.
BOARDDIV 0.111 0.045 .014**
Additionally, board diversity (BOARDDIV) is also positively and
BOARDACT 0.094 0.047 .049**
significantly associated with integrated reporting quality (IRQ) at p =
.025. This result supports Hypothesis 3 (H3) and highlights how the CIVLAW 3.486 1.338 .009***

presence of a higher number of women on the board of directors CSRCOM 3.774 1.137 .001***
results in an increase in the quality of integrated reports provided by ROE 0.026 0.031 .392
the company. SIZE 0.622 0.225 .007***
Finally, the results support Hypothesis 4 (H4), showing that AGE −0.009 0.013 .485
board activity (BOARDACT) is positively and significantly associated ENVSEN 0.885 1.101 .423
with integrated reporting quality (IRQ) at p = 0.032. This indicates n 134
that a high level of board activity, expressed by a greater number
Adjusted R2 .344
of annual meetings, favours the publication of higher quality inte-
***Significant at the 1% level.
grated reports.
**Significant at the 5% level.
In relation to the control variables, the results show a positive and *Significant at the 10% level.
significant impact of the size of the company (SIZE) on integrated
reporting quality (IRQ) at p = 0.016. Furthermore, the positive and sig-
nificant association between the presence of a sustainability commit- integrated reporting quality (IRQ) at p = .009. This demonstrates how
tee (CSRCOM) and integrated reporting quality (IRQ) at p = 0.001 is companies operating in civil law countries provide integrated reports
also demonstrated. This indicates that larger companies and compa- of higher quality than those operating in countries with different legal
nies that provide for the presence of a CSR or sustainability commit- systems.
tee publish higher quality integrated reports.

6.3 | Robustness analysis
In order to increase the consistency of the results, we conducted a
robustness test. Specifically, with the aim of knowing the effect that
the legal tradition of the country may have on the sampled companies
and on the integrated reporting quality, we control for the legal sys-
tem of the country, adding the variable CIVLAW to the initial model.
This variable has a value of 1 if the company operates in a civil law
country and 0 otherwise. This approach follows that used by Frías-
Aceituno et al. (2013b) in relation to the adoption of this reporting
tool. Therefore, the new model of analysis that we propose is
reflected in the following equation:
Model 2:
IRQ = β0 + β1 BOARDSIZE + β2 BOARDIND + β3 BOARDDIV
+ β4 BOARDACT + β5 CIVLAW + β6 CSRCOM
+ β7 ROE + β8 SIZE + β9 AGE + β10 ENVSEN + ε:
Table 3 shows the empirical results of this further regression. The
adjusted R2 is.344. This shows that the new regression model can
explain about 34.4% of the variance in the dependent variable. The
results show that the effects of the board characteristics on the inte-
grated reporting quality are not modified by the legal traditions of the
country in which the company operates. The results also show a posi-
tive and significant effect of the civil law system (CIVLAW) on
7 | DI SCU SSION
Our results confirm the expectations regarding the impact of some
characteristics of the board on integrated reporting quality. Specifi-
cally, the results show that the largest, most active boards with a
greater number of women and nonexecutive members favour the dis-
semination of high-quality integrated reports. Furthermore, the results
show that the impact that these characteristics of the board have on
the quality of the integrated reporting is not modified by the legal tra-
ditions of the country in which the company operates. Agency theory
is key to interpreting our results. Disclosure represents a useful means
to reduce information asymmetry, align the different interests of man-
agers and shareholders, and consequently reduce agency costs
(Bozzolan, 2005; Healy & Palepu, 2001; Watson et al., 2004). How-
ever, for the aforementioned outcomes to materialize, high quality
information must be disclosed to provide a holistic view of business
management. In this regard, the monitoring and supervision role of
the managers' work carried out by the board of directors is fundamen-
tal (Donnelly & Mulcahy, 2008). However, for the board to effectively
carry out its monitoring action, it must have certain characteristics.
First, our results show a positive association between board size
and integrated reporting quality. Therefore, the size of the board can
contribute to the monitoring of the management, favouring a higher
quality disclosure and therefore reducing agency costs. In this regard,
a larger board has greater ease in performing monitoring functions as
it involves the presence of directors with varying skills and
VITOLLA ET AL.
experiences. Therefore, in this perspective, the size of the board must
be assessed together with the quality and variety of professional pro-
files of the directors. In the context of integrated reporting, which
involves the disclosure of nonfinancial and financial information, the
different skills and experience of directors allow for the effective
monitoring of the entire process of collecting and disseminating infor-
mation in relation to all aspects of business management. With refer-
ence to the impact of the board size, our results extend those of the
studies of Frias-Aceituno et al. (2013a) and Alfiero et al. (2017)
according to which larger boards favour the adoption of integrated
reporting.
Secondly, our results highlight a positive impact of board inde-
pendence on integrated reporting quality. The presence of indepen-
dent members is an effective tool for monitoring the actions of
executive directors and management (Rosenstein & Wyatt, 1990). As
the percentage of independent members grows, therefore, opportu-
nistic behaviours aimed at hiding detailed information useful for
shareholders and all stakeholders, tend to decrease. In this perspec-
tive, the presence of a greater percentage of independent members,
and the increased levels of monitoring as a result, induces managers
to increase the integrated reporting quality. With reference to the
impact of board independence, Frias-Aceituno et al. (2013a) verified
the absence of a relationship with integrated reporting adoption. Our
different result could be explained by the attention of the directors to
the quality of information rather than to the type of report adopted.
In this perspective, therefore, directors could be interested only in the
quality of the disclosure and not in the instrument through which the
information is provided. Therefore, directors may not push for the
adoption of a new reporting tool (represented by integrated
reporting), but rather focus their attention only on the quality of infor-
mation. This explains the lack of correlation between board indepen-
dence and the adoption of integrated reporting found by Frias-
Aceituno et al. (2013a) and the positive relationship between the
board independence and integrated reporting quality highlighted by
the results of this research.
Furthermore, our results highlight a positive impact of board
diversity on integrated reporting quality. Specifically, the results
show that the presence of women within the board has a positive
impact on the quality of integrated reports. In fact, women make a
significant contribution to the functioning of the board in terms of
monitoring, improved decision-making activities, and a strengthened
sense of responsibility on sustainability issues (Liao et al., 2015).
The presence of women, generally less self-interested and economi-
cally oriented than men (Hofstede et al., 2010; Ibrahim & Angelidis,
1991), also improves leadership effectiveness and favours the effi-
cient development of general relations (Robinson & Dechant, 1997).
These aspects imply that companies that provide for the presence
of women on the board provide higher quality information within
integrated reports, capable of reducing agency costs. With reference
to board diversity, our findings are similar to those obtained by
Prado-Lorenzo and García-Sánchez (2010) and Barako and Brown
(2008) in reference to sustainability reporting, whereas, in the con-
text of integrated reporting, they extend the results by Frias-
9
Aceituno et al. (2013a), Gerwanski et al. (2019), and Kilic and
Kuzey (2018).
Finally, our results highlight the positive impact of board activity
on integrated reporting quality. Specifically, the results show that a
high number of annual board meetings has a positive effect on the
quality of integrated reports. The effectiveness of the monitoring car-
ried out by the board is also connected to the number of annual meet-
ings. In this perspective, for the board to effectively control the work
of the management in matters of disclosure, it is necessary that it
meets many times a year. As for integrated reporting, the process of
collecting and disseminating information is oftentimes very long and
difficult and therefore involves ongoing monitoring by the board of
directors through a high number of annual meetings. In this regard,
Frias-Aceituno et al. (2013a) achieved a different result from ours,
highlighting the absence of a relationship between board activity and
integrated reporting adoption. The disclosure of quality information
requires continuous control by the board throughout data collection,
selection, and dissemination processes, exercised through a high num-
ber of annual meetings. On the contrary, the decision to adopt a new
type of report may not require continuous monitoring but, inversely,
could be the result of only a few meetings. This could explain the dif-
ferent results obtained.
Overall, the results confirm the expectations regarding the role of
the board as a virtuous governance mechanism. The characteristics of
the board, referring to size, independence, diversity, and level of activ-
ity, if properly considered, favour a reconciliation of the expectations
of shareholders and stakeholders and fuel a more transparent and
quality disclosure. This may also represent an element of competitive
advantage for the company.
8 | CONC LU SIONS
This work has examined the effect of the board characteristics on
integrated reporting quality. Specifically, making use of agency theory,
this study tested the effect of the size, independence, diversity, and
activity of the board as determinants of integrated reporting quality.
The analysis conducted on a sample of 134 international companies
revealed that the size, presence of independent members and women,
and the level of board activity had a positive impact on integrated
reporting quality. This demonstrates how these elements represent
key factors in promoting information transparency behaviour for the
benefit of shareholders and stakeholders.
This study contributes, in various ways, to enriching existing
literature. In addition to being part of the impassioned scientific
debate on integrated reporting, this study broadens the scope of
application of agency theory, currently underused to interpret the
phenomena related to integrated reporting. Moreover, from a concep-
tual point of view, the research stimulates reflections on the potential
implications of different characteristics of the board on the manage-
ment, organizational structure, and level of transparency of the com-
pany. Furthermore, this study broadens the field of the determinants
of integrated reporting quality. In this regard, this study has identified
10
some internal determinants, represented by the characteristics of the
board, which are added to the external determinants found by
Bavagnoli et al. (2018), Vitolla et al. (2019d), and Raimo, Zito, and
Caragnano (2019).
The findings of this study have important implications for practi-
tioners, particularly for corporate executives and high level corporate
governance bodies. The results suggest additional motivations for
identifying directors inclined to a broad and transparent communica-
tion. Integrated reporting is a tool that investors look at with increas-
ing attention. Companies are thus encouraged to redesign the board
of directors in a way that favours virtuous behaviour, including for dis-
closure. Companies should appoint larger boards of directors able to
perform better monitoring and support the development of high-
quality integrated reports. This would guarantee the company a
reduction in information asymmetry and agency costs. Furthermore,
companies should include a large number of independent members
and women within the board of directors. Independent members, hav-
ing no direct relationship with the company, can more freely express
dissenting views of management proposals and effectively exercise
control, favouring the development of higher quality integrated
reports. Women, on the other hand, by paying more attention to
others and to sustainability issues, increase the level of transparency
of the company, supporting the publication of higher quality inte-
grated reports. The presence of independent members and women on
the board therefore guarantees the company improved quality in the
information provided and a consequent reduction in agency costs.
Companies must also consider the board activity level. For the board
to effectively carry out its monitoring function, favouring the develop-
ment of high-quality integrated reports, a high number of annual
meetings is required. In this regard, low levels of board activities could
also cancel the advantages derived from a large board size and the
presence of independent members and women.
Furthermore, the results of this study offer implications for policy
makers. The presence of women and independent members within
the board should be promoted. This has a positive impact on the pro-
vision of high-quality information, able to favour investment levels
and stakeholder engagement. These regulations could be more useful
than those aimed at making the implementation of the integrated
reporting mandatory, which could lead to the mere adoption of a
reporting tool and not the dissemination of high-quality information
(Vitolla, Raimo, & Rubino, 2019c).
However, this study has a few limitations. First, it does not
consider the differences between countries with regard their cor-
porate governance systems, due to the limited size of the sample
that does not allow for an adequate breakdown into subsamples.
Another limitation is related to the methodology. This study is
based on a cross section and not on a panel analysis. However,
these limitations may represent an important basis for future
research. In fact, future studies can first of all develop new quality
measures and conduct longitudinal studies and, second, increase
the sample and repeat the study taking into account the differ-
ences between countries' corporate governance systems. Finally,
future research can also analyse the impact of other characteristics
VITOLLA ET AL.
of the board, such as the presence of foreign members and the
age and educational level of the directors.
OR CID
Filippo Vitolla https://orcid.org/0000-0001-9887-4897
Nicola Raimo https://orcid.org/0000-0003-1512-4906
Michele Rubino https://orcid.org/0000-0001-7909-545X
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How to cite this article: Vitolla F, Raimo N, Rubino M. Board
characteristics and integrated reporting quality: an agency
theory perspective. Corp Soc Resp Env Ma. 2019;1–12. https://
doi.org/10.1002/csr.1879