Audit quality, value relevance, integrated reporting and the moderating role of business ethics: evidence from European ESG firms

Abstract

Purpose This study aims to investigate the relationship between audit quality and value relevance and subsequently ascertain the moderating effect of business ethics on integrated reporting (IR)–value relevance. Design/methodology/approach This study applied linear regressions with panel data using the Thomson Reuters ASSET4 database from European countries to analyse data of 510 companies belonging to the environmental, social and governance (ESG) index between 2010 and 2022. Findings A significant positive relationship was found between audit quality and value relevance. The results also suggest that IR has significant explanatory power on value relevance, and that business ethics moderate the relationship between IR and value relevance in European ESG firms. Practical implications Managers will see IR, business ethics and audit as a business strategy with incremental market value. In this regard, this study tried to provide insights and managerial solutions for managers of international companies to improve their strategy by drawing on the social, moral and business ethics approach. This finding will improve the informational relevance for investment opportunities, thus resulting in improved business performance. Originality/value To the best of the author’s knowledge, this is the first study to investigate the moderating role of business ethics in the relationship between IR and value relevance. This paper fulfils a recognised need to study the influence of audit quality on investor decisions. Furthermore, the contribution of this study could be observed in the fact that the market value analysis differs between the contractual and the business ethics approaches. Also, including a moderating variable in the explanation and determination of value relevance remains somewhat underexplored.