“Impact of integrated reporting on firm value and earnings quality as a moderator in Southeast Asia”

The study analyzes the factors influencing integrated reporting and its implications for firm value with earnings quality as a moderating variable. The study was conducted on energy sector companies on stock exchanges of several Southeast Asian countries. The selection is due to Southeast Asia’s vulnerability to global market sentiment changes related to financial and sustainability aspects. The study employed the SEM-PLS analysis method. 208 data from 26 companies over 8 years were used. The investigation affirms that leverage, age, and board size have positively impacted integrated reporting. Firm size, growth, and board independence have a negative impact on integrated reporting. Profitability, board activity, and stakeholder pressure have not significantly influenced integrated reporting, but integrated reporting positively impacts firm value. Additionally, earnings quality does not moderate the influence of integrated reporting on firm value. The study provides insights for companies to improve the presentation of high-quality information to stakeholders. Increasing the firm value of energy companies in Southeast Asian countries needs to be done as a progressive concern for environmental impacts and sustainably creating integrated reporting.


INTRODUCTION
Firm Value is closely related to the company's performance in generating profits and fulfilling stakeholders' objectives.Firm value is an evaluation conducted on a company and in line with the firm's performance to gain high profits and successfully implement social responsibility (Akinleye et al., 2019;Khunkaew et al., 2023;Kurniasih et al., 2022;Mahmudah et al., 2023).Integrated corporate reporting informs the performance of social and environmental responsibility activities to increase company value.The company will strive to improve financial performance to meet stakeholder desires.Christofi et al. (2023), Adegboyegun et al. (2020), and Harnovinsah et al. (2023) asserted that financial performance is a crucial factor in determining firm value.Integrated reporting, as a new method, combines various aspects of an organization into one report, providing a comprehensive view of the company (Agarwal & Samanta, 2023;Hoque, 2017).This study focuses on the impact of integrated reporting on firm value because both are core elements of the International Integrated Reporting (IIRC) Framework that explains the value creation process (Barth et al., 2017;Conway, 2019;Yorke et al., 2023).The novelty of this study stems from the use of earnings quality as a moderating variable in the longer research period compared to previous studies.

LITERATURE REVIEW
Stakeholder theory recognizes the importance of considering various stakeholders in organizational decision-making and the disclosure of relevant information.Integrated reporting integrates both financial and non-financial dimensions, enabling organizations to meet the expectations and needs of various stakeholders.According to Villiers and Maroun (2017), stakeholder theory plays a central role in the development of integrated reporting.
The key objective of integrated reporting is to offer a more comprehensive perspective to financial stakeholders, particularly investors, regarding an organization's performance.It achieves this by elucidating how value is generated over time.This is crucial because the accessibility, excellence, and cost-effectiveness of resources and inputs can have a profound impact on the organization's ability to sustain itself over the long term.
Research indicating a positive impact of integrated reporting on firm value (ESG Performance proxy) was conducted by Conway (2019), firm value (Market Value of Equity, return on equity, and leverage proxies) by El-Deeb (2019), firm value (expected future cash flows proxy) by Flores et al. (2019), and firm value (Tobin's Q proxy) by Komar et al. (2020).Research on the negative impact of integrated reporting on firm value (financial performance and risk proxies) was conducted by Conway (2019), firm value (leverage proxy) by Lemma et al. (2019), and firm value (cost of equity capital proxy) by Vitolla et al. (2019) and Vitolla et al. (2020).
Leverage has a corresponding influence on the propensity to adopt integrated reporting.Companies with higher leverage levels have serious agency problems and higher agency costs (Ghani et al., 2018;Obeng et al., 2020).Integrated reporting can be an effective communication tool for explaining a company's plans and strategies to reduce its debt levels sustainably.In integrated reporting, companies can highlight the steps taken to manage financial risks, improve cash flow, and optimize capital utilization, thereby instilling confidence in stakeholders about the company's commitment to addressing leverage challenges.Fuhrmann (2019) showed a negative relationship between leverage and integrated reports.High leverage can result in financial constraints and limited resources for engaging in integrated reporting practices.Research conducted by Fuhrmann (2019), Grassmann et al. (2019), Grassmann (2021), and Vitolla et al. (2020) indicates that leverage influences integrated reporting.Both the voluntary disclosure theory and the stakeholder theory propose that the necessity and advantages of voluntary disclosure grow in proportion to the number of external entities concerned with a company's operations (Dienes et al., 2016).Larger-scale companies are also prone to experiencing more significant agency conflicts compared to smaller ones (Fahad & Nidheesh, 2021).Managers of larger firms tend to appreciate the benefits of enhanced disclosure, whereas smaller companies may perceive full information disclosure as potentially detrimental to their competitive position.However, different results are shown in the study by Dumay et al. (2016), which suggests that firm size has a negative influence on integrated reporting.Dumay et al. (2016) and Ghani et al. (2018) also show that firm size influences integrated reporting.
Companies with high profitability levels tend to actively use forward-looking information in integrated reporting and can help companies identify new opportunities to develop profitable business units (Bernardi & Stark, 2018;Bochenek, 2020).Fuhrmann (2019) suggests that Profitability has a negative influence on integrated reporting.Companies with higher profitability have less urgency to engage in integrated reporting to attract investors or lenders.These companies believe that good financial performance is sufficient to gain the trust of stakeholders and attract investments.As a result, companies see less incentive to adopt integrated reporting practices that emphasize non-financial aspects and long-term sustainability.Menicucci (2018) Agency theory underscores the advantages of adopting voluntary disclosure policies (Brammer et al., 2012).This emphasis is rooted in the recognition that information imbalances can harm potentially lucrative company initiatives.This imbalance erodes investor trust as they fear that managers might not select the best projects or that their actions could be driven by motives to  Villers et al., 2017).These considerations highlight that companies may need to pay a higher "price" to investors in order to secure external funding.Companies with lower growth prospects face pressure from stakeholders, including investors and shareholders, to focus on achieving financial goals and improving operational performance.These companies tend to deprioritize non-financial aspects accommodated by integrated reporting to meet market expectations and improve financial performance.Nurkholis (2020) found that older companies do not tend to have higher levels of integrated reporting disclosure than younger ones.Pillai and Seetah (2022) and Senani et al. (2022) found that a company's age has a positive relationship with the quality of integrated reporting disclosure in annual reports.These findings suggest that as a company ages, there is a higher likelihood of integrating sustainability information into its reporting.Integrated reporting requires a shift in reporting approach, where companies need to pay more attention to non-financial issues and integrate this information with financial reporting.Established companies that are accustomed to traditional reporting may be reluctant to adopt integrated reporting, seeing it as a complex and disruptive change.
Board size informs controls to realize good corporate governance.Ioannou and Serafeim (2015), García-Sánchez et al. (2018), and Liu and Zhang (2017) revealed a positive association between board size and the extent of sustainability information disclosed in annual reports.Their findings suggest that companies with larger boards of directors are more inclined to include sustainabilityrelated information in their reports.Furthermore, Mawardani and Harymawan (2021) and Fasan and Mio (2017) also found a positive correlation between board size and integrated reporting disclosure in company reports.This implies that the presence of a larger board of directors is linked to a higher likelihood of a company reporting sustainability-related information in its reports.Companies with larger boards may face challenges in achieving consensus and agreement on relevant non-financial issues related to integrated reporting.Differences in opinions and priorities can complicate the decision-making process related to the implementation of integrated reporting.
The independence board is a party that is really needed to ensure that corporate governance does not have conflicts of interest.Mawardani and Harymawan (2021) and Omran et al. (2021) reveal a positive association between the degree of board independence and the extent of sustainability information disclosed in company reports.Senani et al. (2022) and Mawardani and Harymawan (2021) have robust empirical evidence highlighting the significance of board independence in encouraging the disclosure of sustainability information within company reports.Independent boards tend to play a stronger oversight role in company management.Independent boards are more diligent in monitoring both the financial and non-financial performance of companies and provide specific recommendations and demands for improvement.In this context, efforts to implement integrated reporting may not receive full support from independent boards.
The effectiveness of the board is determined not only by the number of its members but also, more importantly, by the number of activities carried out through meetings and investigations to make policies and strategic decisions.Vitolla et al. (2020) inform that board activity influences integrated reporting and indicate that inadequate board characteristics and activities, such as low expertise and experience, were negatively associated with the quality of integrated reporting.An active board involved in daily decisionmaking may have limited time and resources to focus on non-financial issues related to integrated reporting.In this regard, efforts to implement integrated reporting may be deprioritized because the board's attention is more directed towards immediate operational issues and financial performance.
A company receives pressure from various stakeholders to adopt and implement integrated reporting.The greater pressure that a company receives from external stakeholders leads to the company producing high-quality integrated reporting.Simnett and Huggins (2015) explore the role of stakeholder pressure in the adoption and implementation of integrated reporting practices.Therefore, companies strive to mitigate risks by using reputable public accounting firms with good track records to minimize the risks they face so that the information presented is free from material misstatements (Chouaibi & Hichri, 2020).Pressure from stakeholders can lead companies to adopt a responsive approach rather than a strategic approach in managing sustainability and social responsibility issues.Simnett  Earnings quality refers to the quality of income generated by a company, reflecting the extent to which a company's income has high quality.If a company has high earnings quality, it means its income is more reliable and reflects actual performance.Previous studies indicate that the reported income of high-accrual companies is not likely to be sustained.They may then take short positions to exploit the overvaluation of these companies (Pavlopoulos et al., 2019).García-Sánchez and Noguera-Gámez (2017) and Obeng et al. (2020) inform that the quality of earnings has a moderating effect on how integrated reporting influences a firm's value.
This study investigates the factors that influence integrated reporting and its implications for company value which is moderated by earnings quality.The research hypotheses developed in this study are:

METHODS
The .

Operating Accrual
Earning Cash Flow from Operation Average Assets The debt-to-assets ratio, calculated as total debt divided by total assets, is used to measure leverage.This measurement is based on prior research conducted by Menicucci (2018). .

Total Debt Debt to Assets
Total Assets = Firm size is a measure of a company's significant impact on efficiency, innovation capabilities, and company performance.In this study, the measurement used is the natural logarithm (Ln) of the total assets (Menicucci, 2018).
Profitability reflects a company's ability to generate income or profits from its operational activities.The measurement used in this study is Return on Equity (ROE), calculated as total comprehensive income for the year divided by total equity (Brigham & Ehrhardt, 2016). .

Comprehensive Income
Total Equity = .

Revenue growth
Revenue Revenue current year prior year Revenue prior year Age refers to the length of time that has passed since a company's establishment or the beginning of its operations.A company's age has a significant impact on its behavior and performance.The measurement used is the age of the company, calculated from the date of the company's establishment, based on a prior study by Geroski (1995).
Board size refers to the number of members on a company's board of directors.Mawardani and Harymawan (2021) present a broader view of the influence of board size on a company's performance and internal control mechanisms.In this study, the measurement used is the number of directors and commissioners, based on prior research conducted by Geroski (1995).
Board independence refers to a company's board of directors' ability to make decisions that are not influenced by personal interests or conflicts of interest with other parties that may interfere with the interests of shareholders (Fama, 1980).The measurement used is the number of independent directors and commissioners, based on prior research by Senani et al. (2022) and Mawardani and Harymawan (2021).
Board activity includes the actions and decisions taken by a company's board of directors in carrying out its responsibilities to oversee management and make strategic decisions that can affect the company's performance and value.The measurement used in this study is the number of combined board and commissioner meetings in one year, based on prior research conducted by Fama (1980).
Stakeholder pressure represents the influence or pressure exerted by stakeholders on a company to consider the company's interests in decisionmaking and company actions (Simnett & Huggins, 2015).In this study, the measurement used is the dummy of the Big 4 Audit Firms, based on a prior study by Fama (1980).
Exchange Rate to USD is a control variable, adjusted to the original exchange rate and the end of the sample's fiscal year using the middle rate (between buying and selling rates).A prior study conducted by Setiawanta et al. (2020) has shown that the exchange rate has an impact on firm value.

RESULTS
Each construct has a formative (measurable) indicator which is a regression relationship from indicator to construct, so the way to evaluate the outer model is to look at the indicator weight (SE) value and the t-statistical significance value (P Value).Based on Table 1 of the weight indicators below, it can be seen that all the marginal indicators (> 0.05) of the test results include LEV, FSIZE, IR, EQ, FV, PROF, GROW, AGE, BS, BI, BA, SP and EQ*IR shows an average weight indicator value of 0.057 above the minimum limit (0.05) and all indicators are valid with significant P-Value <0.001 equals 1%).So it can be concluded that all the formative indicators of this research model are valid based on marginal weight indicator values (above the minimum limit) and significance <0.001 (1%) This study has completed the entire inner model test and proceeded to hypothesis testing (see Figure 2 and Table 3).By using a significance level of 10%, out of the 11 hypotheses proposed in this study, the results indicate that 7 hypotheses are accepted, leverage (LEV), size (FSIZE), growth  (GROW), age (AGE), board size (BS), board independent (BI) have a significant influence on integrated reporting (IR), and integrated reporting (IR) has a significant influence on firm value (FV).The remaining four hypotheses are rejected: profitability (PROF), board activity (BA), and stakeholder pressure (SP) have no influence on integrated reporting.Earnings quality (EQ) has not moderated the influence of integrated reporting on firm value.

DISCUSSION
The results indicate that leverage has a positive influence on integrated reporting.Companies can invest more time, energy, and funds in the Integrated Reporting process with sufficient resources.This allows companies to develop more comprehensive reporting systems, expand the scope of presented information, and enhance the report quality.Companies with a high level of leverage indicate a capital structure funded by debt.This debt is obtained from investors who have confidence that the company's performance is good so that it can pay debts.Investors look at company performance not only in income statements but also in integrated reporting.Therefore, companies that have high leverage tend to present integrated reporting.The results of this study support previous research conducted by Grassmann et al. (2019) and Vitolla et al. (2020).
Firm size has a negative influence on integrated reporting.Larger companies tend to have complex organizational structures and intricate decision-making processes.This can complicate the coordination and integration of financial and non-financial information required for implementing integrated reporting.Companies can increase public and investor trust through financing contributions that generate profits.Larger companies can also improve the community's economy by being eco-friendly-oriented.Organizational complexity and bureaucracy can be obstacles to effectively implementing integrated reporting.The results of this study were supported by Dumay et al. (2016).
Profitability does not have a significant influence on integrated reporting.A company's profitability does not significantly affect the implementation of sustainability and corporate social responsibility aspects in integrated reporting.Profitability tends to focus more on financial performance and company earnings.In contrast, integrated reporting aims to integrate sustainability aspects, including social, environmental, and good governance, with financial aspects in a company's reports.The results of this study are supported by Mediaty & Pratiwi (2023), who found that profitability does not have a significant influence on sustainability Reporting.These findings are inconsistent with the research conducted by Menicucci Growth has a negative influence on integrated reporting.This suggests that low or stagnant growth rates can hinder companies from paying attention to sustainability and corporate social

CONCLUSION
This study aims to investigate the factors that influence integrated reporting and determine its impact on company value by analyzing earnings quality as a moderator.The leverage affected integrated reporting, with companies having high leverage being more inclined to implement it to provide a better understanding of financial and sustainability performance.However, as the size of a company increases, the likelihood of adopting integrated reporting decreases due to organizational complexity and decision-making processes.Older companies and those with large boards of directors are more likely to adopt integrated reporting, but the proportion of independent board members cannot influence this decision.Companies need to realize that integrated reporting encompasses sustainability and social aspects and integrates them with financial aspects to enhance transparency and understanding.This can influence investors' and markets' perceptions of a company's value.Several sample energy sector companies from Southeast Asian countries have not presented complete company financial reports on each stock exchange's website or in Internet financial reporting, making data collection difficult as the limitation of the study.Integrated reporting is not only related to financial measurement and good corporate governance.Integrated reporting is also related to legal aspects and culture that were not explored and analyzed.The study suggests that future research could consider other factors such as ownership structure, civil law, legal enforcement, investor protection, and culture.
and Huggins (2015), Ghani et al. (2018), and Vitolla et al. (2019) indicate that stakeholder pressure influences integrated reporting.Integrated reporting is expected to provide more relevant information on a company's performance in both financial and sustainability aspects.Comprehensive information can help investors make better investment decisions and enhance transparency and accountability within the company.Integrated reporting can enhance a company's reputation and brand image.It can influence investor perceptions and increase the company's value (El-Deeb, 2019).Furthermore, the financing decisions of a company may also be affected by investor perceptions of integrated reporting practices(Lemma et al., 2019).Conway (2019), El-Deeb (2019), Flores et al. (2019), Komar et al. (2020), Lemma et al. (2019), and Vitolla et al. (2019) suggest that integrated reporting influences firm value.

H 1 :
Leverage influences integrated reporting.H 2 : Firm size influences integrated reporting.

( 4 )
Company growth results from the combination and utilization of the company's internal resources.In this study, Revenue growth is used as the measurement, based on prior research by Harnovinsah et al. (2023) with the following formula: Investment Management and Financial Innovations, Volume 21, Issue 2, 2024 http://dx.doi.org/10.21511/imfi.21(2).2024.15

Table 1 .
Indicator weight 15)p://dx.doi.org/10.21511/imfi.21(2).2024.15indicatethat there is no multicollinearity problem.The Q-squared value of 0.472 > 0 indicates the model has predictive relevance in the Strong category.The resulting Goodness of Fit (GoF) is 0.542 > 0.36, which indicates the Fit Model is very good.

Table 2 .
Structural model test

Table 3 .
Summary of P-value and path coefficient results