Determinants of Traditional Sustainability Reporting

Business Strategy and the Environment
Bus. Strat. Env. 21, 299–316 (2012)

Published online 18 November 2011 in Wiley Online Library
(wileyonlinelibrary.com) DOI: 10.1002/bse.740
Determinants of Traditional Sustainability Reporting

Versus Integrated Reporting. An Institutionalist
Approach
Julia Catharina Jensen and Nicola Berg*
University of Hamburg, Hamburg, Germany
ABSTRACT
The aim of this study is to analyze similarities and differences between companies with tra-
ditional sustainability reporting (TSR) and those that publish integrated reports. Based on
institutional theory we identify potential determinants of integrated reporting (IR) and test
their relevance empirically in a sample of 309 companies. Our analysis shows that IR com-
panies are different from TSR companies with regard to several country-level determinants.
In particular, investor and employment protection laws, the intensity of market coordination
and ownership concentration, the level of economic, environmental and social development,
the degree of national corporate responsibility and the value system of the country of origin
proved to be relevant. Based on these results, both implications for practice and future stud-
ies are derived. Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment.
Received 23 April 2011; revised 15 September 2011; accepted 24 September 2011

Keywords: integrated reporting; sustainability reporting; institutional theory
Problem and Objectives
I
NDISPUTABLY, REPORTING ON CORPORATE SOCIAL AND ENVIRONMENTAL RESPONSIBILITY (CSER) HAS BROADENED WIDELY
within the last decade (see, e.g., KPMG, 2008; Owen, 2006; Kolk, 2004, 2003, 2001; Kolk et al., 2001; Gray
et al., 2001). Whereas in 1999 about 39% of the Global Fortune 250 companies (G250) reported on their social,
ecological and economic activities, this number increased to 80% in 2008 (KPMG, 2008).
CSER reporting takes place mostly in the form of an addendum to traditional annual reports. This separated report-
ing of financial and non-financial aspects would make sense if they occurred independently in the company. If, how-
ever, CSER is actually incorporated into the strategy, financial and non-financial aspects are interrelated. In this way,
separated accounting disentangles interrelated aspects. Moreover, traditional annual and CSER reporting is retrospec-
tive and does not present future targets and crucial risks that may become relevant in the future. As management of
future targets and risks is one of the major challenges for every company, the ability to serve as an internally oriented
tool is limited. The question is frequently raised of how CSER is actually embedded in a corporation and how much
value can be given to traditional sustainability reports as an addendum to the annual reports if no attempt is made to
appropriately display historic business and no insights into the strategic intent of the business are given (Druckman,
2010; Eccles and Krzus, 2010; Vormedal and Ruud, 2009; Martin and Hadley, 2008).
*Correspondence to: Nicola Berg, Chair of Strategic Management, University of Hamburg. E-mail: nicola.berg@uni-hamburg.de
Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment
300 J. C. Jensen and N. Berg
To overcome these obstacles of TSR, a rising number of academics (e.g. Eccles and Krzus, 2010; King, 2010;
Mammatt, 2009), governments (JSE, 2010), audit firms (Engelbrecht, 2010; Hespenheide, 2010; KPMG, 2010a,
2010b; PWC South Africa, 2010; SAICA, 2010), interest groups (e.g. AccountAbility, 2010; A4S, 2010a; GRI,
2010a; IIRC, 2010a) and companies (e.g. BASF, Phillips, NovoNordisk) advocate publication of one report that com-
prises both financial and non-financial information, and which additionally presents a more holistic picture of the
business, including future targets and links between financial performance and CSER. Such integrated reports
reveal the long-term consequences of decision making in all relevant aspects. Hence, the performance metrics
are rebalanced away from the common short-term perspective of traditional annual reports towards a medium- to
long-term perspective. Greater transparency of costs and benefits leads to a better exposure of the actual sustainabil-
ity performance in relation to achieved goals. Overall, integrated reporting (IR) appears in line with the actual busi-
ness and is more closely related to the information used by the company’s management (IIRC, 2010b; Vancity,
2005). Thereby a renunciation of the traditional pure shareholder orientation is achieved, as CSER aspects are
increasingly included. Overall, it is argued that IR solves some of the obstacles associated with TSR that have been
mentioned above.
Since the first IR was published in 2002, the relevance of this form of sustainability reporting has been increased
rapidly (see, e.g., Elkington and Renaut, 2010; GRI, 2010b; Hespenheide, 2010). Despite this fact, however, current
research is mostly limited to theoretical investigations and stand-alone case studies (see, e.g., Dey and Burns, 2010;
Eccles and Krzus, 2010; Hong, 2010; Lewis, 2010; Adams and Frost, 2006; Gonzales-Benito and Gonzales-Benito,
2006). As opposed to TSR, where patterns, determinants and motivations are widely examined, it is unclear why
corporations adopt IR yet.
The adoption and diffusion of organizational practices is often analyzed on the background of institutional theory
(IT) (see, e.g., Jackson and Apostolakou, 2010; Matten and Moon, 2008; Guerreiro et al., 2006; Delmas and Toffel,
2004; Aguilera and Jackson, 2003; Oliver, 1991; DiMaggio and Powell, 1983; Meyer and Rowan, 1977). According to
IT, organizations are embedded in a comprehensive system of political, financial, educational, cultural and eco-
nomic institutions that exert institutional pressure on them (Jackson and Apostolakou, 2010; Matten and Moon,
2008; Granovetter, 2000, 1985). We shall apply IT to analyze why companies chose IR and how these determinants
differ from companies that publish TSR.
In doing so, we aim to make two important contributions. First, we shall theoretically identify potential condi-
tions under which IR is likely to occur. Second, we shall empirically test the relevance of these determinants for
the choice of IR versus TSR. The results of our study give a comprehensive overview of CSER reporting and explain
similarities and differences between companies with TSR and IR.
The rest of the paper is organized as follows. First, we shall develop the theoretical framework of our study and
derive several research hypotheses. After the description of the methodology, the main results will be presented
and discussed. Finally, the contributions and limitations of the study are outlined and implications for managers
and future studies are derived.
Theory and Hypothesis

As stated above, the purpose of this study is to identify determinants that can explain why companies choose IR as
opposed to TSR. Differences in the adaptation to and diffusion of business strategies – and thus different CSER strat-
egies – between countries are frequently examined with IT (Matten and Moon, 2008; Guerreiro et al., 2006; Delmas
and Toffel, 2004; Aguilera and Jackson, 2003; Oliver, 1991; DiMaggio and Powell, 1983). Based on Whitley’s (1997)
concept of ‘national business systems’, which shares key elements with the ‘varieties of capitalism’ approach of Hall
and Soskice (2001), Matten and Moon (2008) developed a conceptual framework to explain different forms of CSR
with different institutional contexts. Originally developed to explain the more explicit approach of CSR in Europe
and the more implicit CSR approach in the US, it can also be applied ‘to other parts of the global economy’ (Matten
and Moon, 2008, p. 404). Therefore, the historically grown national institutional frameworks in various countries of
the world are compared and their pressures on CSR are analyzed.
Copyright © 2011 John Wiley & Sons, Ltd and ERP Environment Bus. Strat. Env. 21, 299–316 (2012)
DOI: 10.1002/bse
Determinants of Integrated Reporting 301
The lower pillar of the model of Matten and Moon (2008) is based on new institutionalism (Figure 1). The key
argument is that beyond the impact of national institutional factors, organizational processes change and become
institutionalized because they are considered as legitimate. Legitimacy is gained through coercive isomorphisms,
mimetic processes and normative pressures (DiMaggio and Powell, 1983). Generally, accounting is accepted as a
symbol of legitimacy (Brown and Fraser, 2006; Solomon and Lewis, 2002; Carpenter and Feroz, 1990; Covaleski
and Dirsmith, 1988; DiMaggio and Powell, 1983; Meyer and Rowan, 1977). However, owing to the newness of
IR, the impact of related rules, norms or laws is extraordinarily low, if it exists at all. Yet, there is not even a volun-
tarily useable framework. Thus, the impact of coercive isomorphism on the IR is negligible. The same is true for
mimetic and normative pressures. Mimetic processes imply that managers copy strategies of successful organiza-
tions (or competitors), which are regarded as best practice. Yet, IR is too new and the number of organizations hav-
ing adopted it is too low to cause such a bandwagon effect. Normative pressure denotes the impact that educational
or professional authorities exert by setting standards to legitimate organizational practices. As business schools have
not yet adopted IR in their curricula, these pressures are also negligible.
Further, the model differentiates between explicit and implicit CSER. Implicit CSER consists of values, norms
and rules that result in mostly mandatory requirements for companies, whereas explicit CSER includes companies’
communication of policies and practices to their stakeholders (Matten and Moon, 2008). As IR was voluntary in
every country investigated at the time of the report, we focus on the explicit part of the model.
Overall, our analysis comprises the upper part of the framework of Matten and Moon (2008) and investigates the
effects of the political system, financial system, educational and labor as well as on the cultural system with regard to
explicit forms of CSER, hence the choice of IR instead of TSR. This framework is extended by the economic system,
which has proved to be a relevant determinant of sustainability reporting in previous studies (Islam and Deegan,
2008; Neumayer and Perkins, 2004; Belal, 2000).
Historically grown national institutional framework
- Political system
- Financial system
- Education and labor system
- Cultural system
- Economic system
Nature of the Organization Coordination

firm of market and control
processes system
Forms of
corporate
responsibility to
The corporation society
- Explicit CSER
- Implicit CSER
Coercive Mimetic Normative

isomorphisms processes preasures
Organizational field of the corporation
Figure 1. CSER and institutional context of the corporation
DOI: 10.1002/bse
In the following, we shall apply this model to derive several research hypotheses about the impact of institutional
conditions on the publications of IR and test these hypotheses in a sample of 309 companies.
Political System
Political systems have a major impact on the extent of legal regulation within a country. As companies are deeply
rooted within the political system of their country of origin (see, e.g., Bushman and Piotroski, 2006; Rugman,
2000; Ferner, 1997), it can be assumed that they adopt the main characteristics of the political system, as well.
Basically, we can distinguish between common law and code or civil law countries.
Common law countries are characterized by a relatively weak political influence and a focus on shareholders’
needs at the firm level (Kolk and Perego, 2010; Ball et al., 2000; La Porta et al., 1998b). Thus, the primary aim of
companies is to maximize revenue. Besides this, the fulfilling of shareholders’ information needs is important.
As the aim of corporate reporting consists in satisfying the information needs of the relevant interest groups, it is
to be expected that the reports of companies from common law countries target shareholders’ information needs,
which predominantly consist of financial aspects.
Code or civil law countries, on the other hand, implicate a relatively high degree of governmental intervention in
economic activity. The national accounting standards are usually established and enforced by the government (Kolk
and Perego, 2010; Zhao and Millet-Reyes, 2007; Ball et al., 2000). Companies are viewed as a responsibility-bearing
part of society, striving to satisfy the needs of the broader group of stakeholders (Kolk and Perego, 2010; Kolk et al.,
2001). An important aim is to reduce the degree of information asymmetry between managers and stakeholders,
which leads to a high degree of corporate transparency allowing stakeholders to assess the behavior of companies
in great detail (Ball et al., 2000; Jensen and Meckling, 1976; Berle and Means, 1932).
An important instrument to ensure transparency is annual reports of companies. Because they are aimed to sat-
isfy the information needs of a wider group of stakeholders and not only those of shareholders, it is to be expected
that the report goes beyond financial data. Hence, all relevant aspects of the corporation including social and envi-
ronmental issues are expected to be disclosed. Based on these considerations we propose the following.
H1.1. Companies from a civil law country are more likely to publish integrated reports.
In order to analyze the impact of the political system on CSER accounting in more detail we distinguish between
the economic and social dimensions of legal protection. The first aspect consists of the level of investor protection
(Jackson and Apostolakou, 2010; Choi and Wong, 2007). In countries with high investor protection it is crucial to
meet shareholder needs. Shareholder needs are in the focus of traditional annual reports, where CSER information
is traditionally less valued. On the other hand, in countries where social needs are highly valued, strong employment
protection is prevalent (Jackson and Apostolakou, 2010). We therefore assume that in these countries reporting of
CSR activities is more important, which favors IR. Based on these considerations we propose the following.
H1.2. Companies from a country with strong investor protection laws are less likely to publish integrated reports.
H1.3. Companies from a country with strong employment protection laws are more likely to publish integrated reports.
Financial System
Financial systems can basically be distinguished as related to their degree of market coordination into primarily
market-based and primarily bank-based economies. In bank-based economies such as Japan and Germany, the
majority of financial assets and liabilities consist of bank deposits and direct loans (Vitols, 2001). Financial
intermediaries transform lot sizes between investors and capital acquirers, between durations and between risks
(see, e.g., Hartmann-Wendels et al., 2007). Furthermore, they are expected to avoid some of the information defi-
ciencies associated with security markets. The close relationship to companies fosters banks to intensively monitor
and screen corporate behavior. Because credit volumes are often high and the relationship is established on a long-
term basis, these monitoring costs are lower than they would be for individual investors. As companies depend on
bank capital, they provide these financial intermediaries with direct access to company data. By virtue of their own
DOI: 10.1002/bse
research activities, their demand for extensive reporting is relatively low (Ali and Hwang, 2000; Mayer, 1990). We
assume that this applies not only to reporting in general, but also to CSER reporting in particular.
In market-based economies such as the UK or the US, corporate control is coordinated by a more anonymous
capital market. Companies typically have a large number of stakeholders who hold smaller stakes and base their invest-
ment decisions on self-analyzed information. As companies cannot rely on capital provided by banks, they depend
more on their stakeholders. Therefore stakeholders are more powerful, even if control is more dispersed. This requires
companies to disclose not only financial information that is important for shareholders, but all relevant aspects of their
operations. As they rely on stakeholder goodwill, they have an incentive to distinguish themselves by using innovative
forms of reporting (Ali and Hwang, 2000). We therefore hypothesize the following.
H2.1. Companies from countries with a higher degree of market orientation are more likely to publish
integrated reports.
Further, we argue that the extent of ownership concentration in a company influences the form of sustainability
reporting. As opposed to the model of Berle and Means (1932) of widely dispersed corporate ownership, more recent
research reveals that large shareholders control a significant number of companies in many countries (Faccio and
Lang, 2002). Whereas a higher ownership dispersion is common for the financial systems of continental Europe,
ownership concentration can be found particularly in the UK and the US (Faccio and Lang, 2002; Holderness
et al., 1999; La Porta et al., 1999; Shleifer and Vishny, 1997; Zwiebel, 1995; Holderness and Sheehan, 1988).
The presence of a controlling owner changes the nature of the governance problem usually associated with the
separation of ownership and control. Dominating shareholders have an incentive to monitor managers, thus reduc-
ing the traditional conflict between owners and managers (Jensen and Meckling, 1976; Berle and Means, 1932). On
the other hand, information asymmetry, diverging interests and entrenchment of the controlling owners towards
the minority investors foster a new agency conflict between the mutually exclusive groups of owners (Morck
et al., 1988; Fama and Jensen, 1983; Jensen and Meckling, 1976; Berle and Means, 1932). Owing to their dominant
position, the controlling shareholders are able to pursue their own goals, if necessary at the expense of minority
shareholders (Burkart and Panunzi, 2006). An example is the information policy of family-dominated companies,
typical to Germany or France (Faccio and Lang, 2002). The dominating owner usually gets the desired information
directly from the company, as it is generic for bank-oriented economies, as well. Controlling owners are therefore
not dependent on published information. Moreover, extensive publishing companies risk losing competitive advan-
tage by revealing the proper information on the firms’ rent seeking activities. However, apart from the fact that they
are not dependent on published information, dominant owners are not interested in publishing broad, reliable and
clear reports (Fan and Wong, 2002). As a result, even companies that are willing in principle to publish extensive
reports will lose the motivation to do so. Thus the added value of extensive reporting is low or even negative (Morck
et al., 1988). Similar to Tagesson et al. (2009), who found a negative effect of ownership concentration on social
information published on corporate websites, we hypothesize the following.
H2.2. Companies from countries with a lower degree of ownership concentration are more likely to publish
integrated reports.
Education and Labor Systems

Another important aspect of the institutional environment of companies is the level of their involvement in post-
secondary education (Matten and Moon, 2008). In some countries, such as the US, companies’ stake in education
is one of their most signaled CSR issues, whereas in other countries companies do not lend as much importance to
education issues. Besides philanthropic motives, investments in education allow companies to customize processes
and contents of education as related to their needs (Salmi, 2000). One example of corporate investment in tertiary
education is the rapid growth of corporate universities.
We argue that companies with high involvement in tertiary education show a strong interest in new research
findings and academic knowledge and will thus adopt new management techniques more rapidly. Therefore, they
DOI: 10.1002/bse
may decide for IR – which is arguably a new form of CSER reporting – earlier than companies in countries with low
company involvement in tertiary education. These considerations lead to the following hypothesis.
H3.1. Companies from a country with a higher share of private expenditures on tertiary education are more likely to
publish integrated reports.
Further, labor systems differ notably between countries. One important determinant of the labor system is the
degree of employee involvement in employment-related decisions. For example, employee involvement in deci-
sion-making is high in Sweden and Germany and low in South-East Europe (Ignjatovic and Svetlik, 2003).
Involvement of employees is frequently associated with trade unions collectively representing the interests of
workers. A high density of trade unions in a country often goes along with socio-political progress (De Geer
et al., 2010). As corporate reports are meant to reflect the company and its value system, it is to be assumed that
IR is of greater relevance in countries with high trade union density. Thus we derive the following hypothesis.
H3.2. Companies from a country with a higher density of trade unions are more likely to publish integrated
reports.
Cultural System
One important aspect of a country’s culture consists in the extent to which companies are seen as responsibility-
bearing parts of society. Whereas in some countries corporate responsibility is primarily limited to financial well-
being, in other countries corporate responsibility involves a broader set of environmental and social values. The
National Corporate Responsibility Index (NCRI) captures variation between countries with regard to CSER (Kolk
and Perego, 2010). It examines both the extent to which there is an enabling environment for corporate responsibil-
ity at the national level, and the resulting outcomes of corporate responsibility practices (Zadek et al., 2003). For
example, Sweden traditionally exhibits a considerably higher national corporate responsibility than the US (Kolk
and Perego, 2010), although the economic development of the two countries is similar (World Bank, 2010).
As companies are subject to home government regulations, it is to assume that the degree of national corporate
responsibility also impacts their likelihood to act responsibly and to disclose information about their social and
environmental activities (see, e.g., Kolk and Perego, 2010; Sotorrío and Sánchez, 2008). We argue that this also
applies to CSER reporting, respectively the more innovative IR. Thus, we derive the following hypothesis.
H4.1. Companies from a country with a higher national corporate responsibility are more likely to publish
integrated reports.
Besides the degree of national corporate responsibility, countries diverge as related to their value of human concerns.
Inglehart and Baker (2000) found that cultural diversity from religion via politics to economic and social life can be
described by two dimensions: traditional versus secular–rational values and survival versus self-expression values.
In countries with high survival values, economic and physical security is more pronounced, whereas in countries
with high self-expression values, well-being and quality of life are more important. Whereas in developed economies
priorities of survival are decreasing with increasing wealth, differences are still distinctive. In countries where self-
expression is valued highly, responsibility (e.g. for environmental protection) and tolerance of diversity are impor-
tant. These issues are less relevant in countries with high survival values. Here, pursuing of financial objectives
is dominant (Inglehart, 2011).
TSR has an extraordinary focus on the financial aspects of a company. CSER aspects that do not relate to the
financial well-being are regarded as less relevant and therefore published as an addendum to the main document.
IR, in contrast, does not differentiate between financial and non-financial information. In particular, financial aspects
are not regarded as dominant in countries where self-expression is important. We therefore propose the following.
H4.2a. Companies from a country with a higher value of self-expression are more likely to publish integrated
reports.
DOI: 10.1002/bse
In countries where traditional values are highly relevant, religion, national pride and traditional family values
prevail. Instead, in countries with pronounced secular–rational values, factors such as the acceptance of abortion
or divorce and high interest in politics, as well as keenness to debate political issues, are characteristic. Further,
responsibility is an important value within secular–rational societies (Inglehart, 2011).
CSER implies that the society takes over responsibility for its actions as related to the current and prospective
consequences. IR pursues a holistic perspective of business activities including their environmental and social
impact. As this is more import in countries with high secular–rational values, we hypothesize the following.
H4.2b. Companies from a country with higher secular–rational values are more likely to publish integrated
reports.
Economic System
Previous studies reveal that the economic system is a relevant determinant of sustainability reporting (Neumayer
and Perkins, 2004). Islam and Deegan (2008) found that voluntary disclosure is more common in developed than
in developing countries. In developing countries it is primarily motivated by pressure exerted by multinational
corporations. The study of Belal (2000) reveals that this is particularly true for CSER reporting.
We argue that the same logic applies to IR. Innovations are generally more likely to appear in developed
countries, and companies from these countries generally apply new management instruments earlier than those
in less developed countries. We therefore assume that the level of economic development has a positive effect on
IR and propose the following.
H5. Companies from a country with a higher economic development are more likely to publish integrated
reports.
Figure 2 summarizes our hypotheses and presents our research model.
National institutional framework
Political system: H1
1. Common vs. civil law [civil: +]
2. Investor protection [−]
3. Employment protection [+]
Financial system: H2
1. Market coordination [+] via
2. Ownership concentration [−]
Explicit CSER
Nature of the firm
Education and labor system: H3
Organization of
1. Private expenditures for tertiary market processes IR vs. TCR
education [+] Coordination and
control processes
2. Trade union density [+]
Cultural system: H4
1. National corporate reponsibility [+]
2. Value system
a. Self-expression values [+]
b. Secular-rational values [+]
Economic system: H5 [+]
Figure 2. Research model and hypotheses
DOI: 10.1002/bse
Method
Data
The sample of this study consists of two sources. The dependent variable discriminates between IR and ‘best in
class’ TSR companies. ‘Best in class’ TSR companies were gathered from a dataset received from GRI. These
N = 105 companies match the companies that published the best 5% of sustainability reports in 2009, elected by
the readers’ choice award 2010. N = 204 IR companies were sourced primarily from the GRI Reports List
(N = 172) (GRI, 2010c). The remaining IR companies (N = 30) were gathered from various sources. These include
Eccles and Krzus (2010), the entrants of CRRA Reporting Awards 2010 (Corporate Register, 2010) and companies
exemplarily listed by Accounting for Sustainability (A4S, 2010b).
Measures
The independent variables were obtained from various sources. In line with the base year of the company reports we
use data for 2008, if available. Table 1 gives an overview of the classification for the 43 countries in our study.
The indicator variable COCI describes a country’s legal system and discriminates between common law (COCI = 1)
and civil law (COCI = 0) countries (see, e.g., Kolk and Perego, 2010; Bushman and Piotroski, 2006). The classifica-
tion is derived from La Porta et al. (1998b).
The level of investor protection within a country is described by INPR. INPR is computed by the International
Finance Corporation (IFC) and The World Bank, who adopted the methodology developed by Djankov et al.
(2008). INPR is defined between 0 and 10, with higher values indicating more investor protection. INPR is equal
to the average of the disclosure index, the director liability index and the ease of shareholder suits index, which
are computed by the same authors (IFC and World Bank, 2011).
EMPR is computed by the OECD (2010), and depicts the level of employment protection within a country. It is
defined between 0 and 6, with higher scores indicating stricter regulation. EMPR contains 21 basic items originat-
ing from three main areas, namely the protection of regular workers against individual dismissal, the regulation of
temporary forms of employment and specific requirements for collective dismissals (OECD, 2010).
COOR depicts the level of market coordination within a country and contains data on stakeholder power, dispersion
of control, size of the stock market, level and degree of wage coordination and labor turnover (Hall and Gingerich,
2004). COOR is standardized between 0 and 1, with higher scores denoting a higher level of market coordination.
As a proxy for ownership concentration, OWNE measures whether the state is likely to have capital holdings in the ten
largest firms (OWNE = 1). If the state is not one of the three largest shareholders, OWNE = 0 (La Porta et al., 1998b).
Companies’ involvement in post-secondary education (EDUC) in a country is measured by the share of private
expenditures to public expenditures for tertiary education as a percentage of GDP. Data were taken from UNESCO
(UIS, 2010). Post-secondary education refers to the highest two levels of the International Standard Classification of
Education (ISCED).
Labor systems (TRAD) are described by the density of trade unions within a country. TRAD is equal to the ratio of wage-
and salary-earning trade union members to the total number of wage- and salary-earners as reported by the OECD (2010).
Moreover, we take account of the national corporate responsibility (NACO). NACO ranges from 0 to 100, with 100
indicating the highest level. Data for NACO were obtained from Kolk and Perego (2010), who use the classification
of AccountAbility (2005). For a more detailed analysis, we apply the Environmental Performance Index (EPI) as a
measure of environmental responsibility. The EPI ranges between 0 and 100, with 100 denoting the lowest environ-
mental impact and hence the highest development status (Esty et al., 2008). The social development of a country is
measured by the Human Development Index (HDI) published by UNDP (Globerman and Shapiro, 2002). The
lower a country’s rank in the HDI, the higher is the degree of human development (UNDP, 2010).
The value system of a country is depicted as TRSE and SUSE. Values below zero for TRSE conform to traditional
value systems and values above zero to secular–rational value systems. The higher the absolute value, the stronger is
the traditional respectively secular–rational orientation of a country. Values less than zero for SUSE conform to a
survival-oriented value system and values above zero to a self-expression value system. Higher absolute values indicate
a stronger manifestation of the respective value system (Inglehart and Baker, 2000; Inglehart, 2008).
DOI: 10.1002/bse
COCI INPR EMPR COOR OWNE EDUC TRAD NACO EPI HDI SUSE TRSE GNI EFI
Argentina civil 4.7 – – concentrated 4.5 – – – 38.0 0.4 0.7 7 190.0 51.2
Australia common 5.7 1.4 0.4 dispersed 0.8 28.9 68.1 79.8 3.0 1.8 0.2 40 240.0 82.6
Austria civil 4.0 2.4 1.0 concentrated 5.5 – – – 15.0 1.4 0.3 46 350.0 71.6
Belarus – 4.7 – – – – – – 80.5 64.0 1.2 0.9 5 380.0 –
Belgium civil 7.0 2.6 0.7 concentrated 11.0 51.9 66.7 78.4 17.0 1.1 0.5 45 010.0 70.1
Bolivia – 4.0 – – – – – – 64.7 117.0 – – 1 460.0 49.4
Brazil civil 5.3 2.3 – concentrated – – 66.7 – 70.0 0.6 1.0 7 490.0 55.6
Canada common 8.3 1.0 0.1 dispersed – 27.1 67.1 – 4.0 1.9 0.3 43 490.0 80.4
Chile civil 6.3 1.9 – dispersed 0.2 – – – 40.0 0.0 0.9 9 470.0 77.2
China – 5.0 2.8 – – – – 48.8 65.1 81.0 1.2 0.8 3 060.0 51.0
Colombia – 8.3 – – – – – – – 75.0 0.6 1.9 4 610.0 65.5
Denmark civil 6.3 1.9 0.7 dispersed 160.0 67.6 – – 14.0 1.9 1.2 58 550.0 77.9
Determinants of Integrated Reporting
Finland civil 5.7 2.3 0.7 dispersed – 67.5 – – 11.0 – 0.8 47 630.0 73.8
France civil 5.3 3.0 0.7 dispersed 30.3 7.7 65.3 – 10.0 – 0.6 42 190.0 64.2
Germany civil 5.0 2.6 1.0 concentrated 20.3 19.1 68.0 – 22.0 0.7 1.2 42 800.0 71.1
Greece civil 3.3 3.0 – concentrated – 24.0 – 80.2 24.0 0.6 0.8 27 650.0 62.7
Hungary – 4.3 2.1 – – 9.0 16.8 – – 36.0 1.2 0.4 12 800.0 66.1
India common 6.0 2.6 – dispersed – – – 60.3 128.0 0.2 0.4 1 080.0 53.8
Israel common 6.0 1.9 – concentrated – – – 79.6 23.0 0.4 0.3 24 710.0 67.7
Italy civil 5.7 2.6 0.9 dispersed 2.0 33.4 56.9 – 20.0 0.6 0.1 35 230.0 62.7
Japan civil 7.0 1.7 0.7 concentrated 0.5 18.2 – – 8.0 0.5 2.0 37 930.0 72.9
Luxembourg – 4.3 3.4 – – – 37.4 – – 18.0 1.1 0.4 74 890.0 75.4
Malaysia common 8.7 – – dispersed – – – – 63.0 0.1 0.7 7 250.0 64.8
Mexico Civil 6.0 3.2 – concentrated 3.0 – 52.4 79.8 52.0 1.0 1.5 10 000.0 68.3
Mongolia – 6.3 – – – – – – 68.1 114.0 – – 1.7 60.0
Netherlands civil 4.7 2.2 0.7 dispersed 7.6 18.9 68.3 78.7 9.0 1.4 0.7 48 990.0 75.0
New common 9.7 1.2 0.2 concentrated 1.7 20.8 – – 19.0 1.9 0.0 26 830.0 82.1
Zealand
Norway civil 6.7 2.7 0.8 concentrated – 53.3 67.3 – 2.0 2.2 1.4 86 670.0 69.4
Panama – 4.7 – – – 0.0 – – – 62.0 – – 6 290.0 64.8
Peru – 6.7 – – – 2.0 – – 78.1 87.0 0.0 1.4 3 990.0 67.6
Philippines civil 4.0 – – concentrated – – – 77.9 90.0 0.1 – 1 700.0 56.3
Poland – 6.0 2.4 – – 5.1 15.6 – 80.5 37.0 0.1 0.8 11 820.0 63.2
Portugal civil 6.0 2.8 0.7 concentrated 1.0 20.4 – 79.4 29.0 0.1 – 20 540.0 64.4
Republic of – 5.3 2.1 – – 1.0 10.3 – 79.4 26.0 0.6 1.1 – 69.9
Korea
Singapore common 9.3 – – dispersed – – – – 25.0 – – 37 650.0 86.1
South Africa common 8.0 1.4 – concentrated 0.0 – – 69.0 121.0 0.1 1.2 5 870.0 62.8
Spain civil 5.0 3.1 0.6 concentrated – 14.3 61.9 – 13.0 0.5 0.1 31 630.0 69.6
Sri Lanka – 5.3 – – – – – – 79.5 99.0 – – 1 780.0 54.6
307
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Bus. Strat. Env. 21, 299–316 (2012)
308
COCI INPR EMPR COOR OWNE EDUC TRAD NACO EPI HDI SUSE TRSE GNI EFI
Sweden civil 6.3 2.1 0.7 dispersed 6.5 68.3 73.5 – 6.0 2.4 1.9 52 460.0 72.4
Switzerland civil 3.0 1.8 0.5 dispersed – 18.3 70.7 – 7.0 1.9 0.7 56 370.0 81.1
Taiwan civil 4.3 – – – – – – 80.8 – 1.2 1.2 – 70.4
United common 8.0 1.1 0.1 dispersed 62.5 27.1 69.0 – 16.0 1.7 0.8 46 150.0 76.5
Kingdom
USA common 8.3 0.9 0.0 dispersed 0.5 11.9 67.5 81.0 12.0 1.8 – 48 190.0 78.0
Source La Porta IFC and OECD (2010) Hall and La Porta UNESCO OECD Account- Esty et al. UNDP Inglehart
et al., World Gingerich et al., (2010) (2010) Ability (2008) (2010) and Baker
(1998b) Bank (2004) (1998b) (2005) (2000)
(2011)
Inglehart World Heritage Foundation
and Baker Bank (2010)
(2000) (2010)
Table 1. Classification of independent variables
DOI: 10.1002/bse
J. C. Jensen and N. Berg
Bus. Strat. Env. 21, 299–316 (2012)

The level of economic development is measured by per-capita GNI. Data were taken from The World Bank (2010).
Moreover, we refer to the Economic Freedom Index (EFI) to measure the level of state interventions in economic
activities. Published by the Heritage Foundation (2010), the EFI ranges from 0 to 100, with 100 denoting the highest
degree of economic freedom.
Results and Discussion

In order to test for statistically significant differences between companies with IR and TSR, we used two-tailed non-
parametric tests. For the nominal independent variables with nominal scales we run Pearson Chi-square tests of
independence with a 5% level of significance. Phi was calculated to detect the strength of association between the
nominal variables. We further computed the standardized residuals in order to identify which cells have which kind
of impact on significant Chi-squares.
To test for significant differences of the ordinary-scaled independent variables, we used Kolmogorov–Smirnov
Z-tests (K-S Z-T). As opposed to the commonly used Mann–Whitney U-test, the K-S Z-T controls not only for the
central tendency of the distribution but also for skewness, kurtosis, scatter etc. To check for imprecise estimates
of the asymptotic test, we used the Monte Carlo technique with a 99% confidence interval. We applied a 5% level
of significance.
Hypothesis 1.1 proposed that companies from civil law countries are more likely to publish integrated reports.
Table 1 reveals that the Pearson Chi-square test does not support this hypothesis (p = 1.000). 70% of IR, as well
as TSR, originates from a civil-law country, hence no differences exist.
In hypothesis 1.2 we specified the political system in greater detail and proposed that companies from a country
with strong investor protection laws are less likely to publish integrated reports. Table 2 presents the results of the
K-S Z-T and reveals that significant differences exist between IR and TSR. However, the direction is contrary to our
expectations. IR is significantly (p < 0.01) more likely to be published in countries with stronger investor protection
laws, as the mean values for INPR indicate (IR, 6.225; TSR, 5.751).
In hypothesis 1.3 we proposed that companies from a country with stronger employment protection are more
likely to publish integrated reports. Table 3 presents the results of the K-S Z-T and reveals that significant differences
exist (p < 0.01), but the direction is contrary to our expectations. IR companies are significantly more likely to
originate from countries with weaker employment protection laws.
Interestingly, none of the hypotheses regarding the political system of a country were confirmed by our data.
Whereas the results for hypothesis 1.1 are not significant, the coefficients for hypothesis 1.2 and hypothesis 1.3
are even contrary to our assumptions. One explanation for this may be that IR is not driven by market demands
but that companies located in traditional stakeholder markets attempt to attract underemployed stakeholders by
publishing to date less demanded information. In these countries, a stand-alone sustainability report would probably
not be noted. Therefore information is integrated into the commonly read annual reports.
Nominal independent variables % of Std. Residual Pearson Chi
IR TSR Total IR TSR c2 a j
Legal environment civil-law 70% 70% 70% 0.0 0.0 0.003 1.000 0.003
common-law 30% 30% 30% 0% 0%
Ownership concentration dispersed 58% 36% 50% 1.6 2.0 13.13 0.000 0.214
concentrated 42% 64% 50% 1.6 3.0
Table 2. Differences in categorical variables between IR and TSR companies

IR N = 204, TSR N = 105. A Pearson Chi-squared test (two tailed) was used to detect significant differences. Df = 1.
DOI: 10.1002/bse
Another explanation may be that financial information is less valued in countries with strong employment pro-
tection laws and a pronounced stakeholder orientation. Therefore an integration of non-financial information would
probably not be associated with appreciating CSER information. Instead, the relevance of CSER information may be
less obvious in IR and companies with IR may be regarded as less committed to CSER issues.
Our results with regard to hypothesis 1.1 may also be biased due to data inconsistencies. While data for COCI
were taken from La Porta et al. (1998a), data for the dependent variable are from 2008. It may be assumed that
the political conditions have changed in several countries since the late 1990s, which affected our analysis.
Hypothesis 2.1 proposes that integrated reports are more likely to be published in countries with a higher degree
of market orientation. The K-S Z-T supports this hypothesis. IR companies are significantly (p < 0.01) more likely to
originate from countries with a stronger market orientation than TSR companies.
Hypothesis 2.2, which proposed a positive impact of higher ownership dispersion, is significantly supported, too.
The Pearson Chi-square test reveals that the results are significant at the 1% level, and the standard residuals indi-
cate a positive relationship between dispersed ownership structures and IR (Table 1). Phi denotes a moderate
strength of association. Therefore, dispersed ownership structures significantly encourage IR.
Moreover, we find significant support for hypothesis 3.1, proving a positive impact of the share of private expen-
ditures for tertiary education (Table 2). Whereas private expenditures account for 6.5% of total expenditures in
countries from which IR companies originate, this figure is as low as 0.46% in TSR companies.
In hypothesis 3.2 we proposed that companies from countries with a high trade union density are more likely to
disclose integrated reports. The K-S Z-T reveals significant differences at the 1% level. Whereas the median values
do not differ remarkably between IR (19.10) and TSR (18.30), there is a high spread between the mean values (IR,
30.59; TSR, 18.05). Further, the mean value for IR is fundamentally higher than the median, indicating a left-side
shaped distribution. For TSR, mean and median values are similar, indicating a distribution close to normal. IR
companies are therefore more likely to originate from countries with a higher trade union density.
Hypothesis 4.1 predicted that national corporate responsibility has a positive impact on IR. Table 2 reveals that
the differences between the means of IR (67.235) and TSR (66.348) are moderate, but statistically significant
(p < 0.1). We further differentiated between environmental and social performance. Table 2 reveals a significant
impact for EPI and for HDI. The means indicate that in IR countries higher levels of environmental (IR, 83.86;
TSR, 80.88) and social development (IR, 26.38; TSR, 48.22) exist as opposed to TSR countries. Thus, hypothesis
4.1 is supported.
With hypothesis 4.2 we tested the impact of a country’s value system on the likelihood of IR. In hypothesis 4.2a
we proposed that companies originating from countries valuing self-expression more highly than survival necessi-
ties are more likely to publish integrated reports. The K-S Z-T gives support for this hypothesis. The comparison of
means reveals that the average of companies in our sample originates from countries valuing self-expression rela-
tively highly, but IR companies originate from countries where self-expression is valued even more. Overall, TSR
as well as IR is therefore more likely to appear in countries that value self-expression more highly.
Further, the K-S Z-T significantly supports hypothesis 4.2b (p < 0.01), where we proposed that companies from
countries with higher secular–rational as opposed to traditional values are more likely to publish integrated reports.
The mean exhibits positive values for IR (0.375) and negative values for TSR ( 0.47). Therefore, TSR releasing
companies are more likely to be located in countries with traditional value systems, and a higher level of secular–
rational values encourages IR.
In hypothesis 5 we predicted a positive impact of the level of economic development on IR. Table 2 reveals
significant differences at the 1% level for per-capita GNI, as well as for EFI. A comparison of medians for GNI
(IR, 43 490; TSR, 7490) and means for EFI (IR, 71.447; TSR, 62.736) reveals that IR is more common in more
highly developed countries.
Contributions, Limitations and Implications

This study is one of the first to take a large-scale, quantitative approach to analyze the determinants of IR. The aim of
our study was to explain why companies choose different reporting strategies. Based on IT, we theoretically
DOI: 10.1002/bse
a
Test Statistics
Valid Missing Most Extreme Kolmogorov-Svirnov Mean Median Std.

Differences Z-Test Deviation
Determinants of Integrated Reporting
IR: N TSR: N N Absolute Positive Negative Z p-value IR TSR IR TSR IR TSR
INPR 200 106 0 ,209 ,135 ,209 1,736 ,005 6,225 5,751 5,700 5,300 4,336 1,560
EMPR 184 98 24 ,333 ,333 ,170 2,664 ,000 2,069 2,085 2,060 2,270 0,707 0,750
COOR 150 36 120 ,544 ,107 ,544 2,934 ,000 0,532 0,258 0,615 0,000 0,266 0,374
EDUC 117 43 149 ,459 ,128 ,459 2,572 ,000 15,326 5,891 6,500 0,455 29,545 13,633
TRAD 157 47 105 ,373 ,032 ,373 2,241 ,000 30,585 18,045 19,100 18,300 20,432 6,791
NACO 134 77 95 ,418 ,153 ,418 2,926 ,000 67,235 66,348 68,000 66,700 4,592 3,193
EPI 199 106 1 ,505 ,158 ,505 4,199 ,000 83,864 80,875 83,100 82,250 7,303 5,984
HDI 197 106 3 ,447 ,447 ,032 3,707 ,000 26,381 48,217 13,000 38,000 33,469 34,100
SUSE 183 106 17 ,297 ,176 ,297 2,435 ,000 1,066 0,812 1,390 0,610 0,952 0,605
TRSE 178 82 46 ,530 ,060 ,530 3,974 ,000 0,375 0,466 0,500 0,980 0,923 0,737
GNI 196 106 4 ,424 ,052 ,424 3,518 ,000 37.106,233 21.871,792 43.490,000 7.490,000 18.948,134 18.463,112
EFI 200 106 0 ,575 ,020 ,575 4,784 ,000 71,447 62,736 72,437 55,566 7,598 9,972
Table 3. Differences in IR versus TSR between at least ordinary scaled variables

a
Grouping Variable: IR_TSR.
IR N = 204, TSR N = 105. K-S Z-T (two tailed) was used to detect significant differences.
DOI: 10.1002/bse
311
Bus. Strat. Env. 21, 299–316 (2012)

identified major determinants of sustainability reporting and tested these determinants empirically. As a main re-
sult it can be summarized that IR companies are different from TSR companies with regard to several aspects.
Hence our basic assumption is confirmed.
The present study reveals that the characteristics of IR companies differ significantly from those of TSR compa-
nies in terms of the institutional conditions under which they operate. IR companies are more likely to originate
from countries with higher investor protection. The financial system is characterized by a higher degree of market
coordination and dispersed ownership structures. IR companies are more likely to originate from countries where
private expenditures for tertiary education are higher. Further, labor systems are characterized by a higher trade
union density than in countries from which TSR companies are likely to originate. Moreover, a higher national
corporate responsibility within a country enhances the likelihood of IR. This accounts for environmental as well
as economic aspects. A high relevance of self-expression values as opposed to survival values, as well as a high rel-
evance of secular–rational values as opposed to traditional values, further heightens the likelihood of IR. By adding a
fifth dimension to the framework of Matten and Moon (2008), we moreover identified a positive relation between
the economic development status of a country and the likelihood that corporations will opt for IR.
The aim of our study was first to analyze whether IT can be used to explain differences in corporate reporting.
Second, we aimed to provide further explanations and understandings for the youngest trajectory of reporting,
namely, IR. Our research contributes to both objectives. First, we examined the applicability of IT to explain differ-
ences in sustainability reporting. Thereby we identified a range of variables, by applying and extending the frame-
work of Matten and Moon (2008). Second, we tested the impact of these variables empirically and indentified the
mechanisms by which institutional pressures lead to the adoption of IR versus TSR. In particular, we show that
IR is determined by the financial system, educational and labor system, cultural system and economic system of
a country, while political factors show no significant effect.
By explaining the differences between TSR and IR this study contributes to the emerging research on IR (Dey
and Burns, 2010; Eccles and Krzus, 2010; Lewis, 2010) and extends studies on corporate voluntary disclosure (e.g.,
Kolk and Perego, 2010; Kolk, 2009, 2004, 2003, 2001; Cormier and Magnan, 2003; Deegan, 2002; Hackstone and
Milne, 1996). This is especially important for managers as it helps them to understand under which conditions IR will
be more expected. Accordingly, they may acquire relevant knowledge and train accounting specialists to implement IR.
Our results are also relevant for shareholders. Investors who are interested in specific information of firms that
are disclosed in IR may consider the institutional conditions that increase the likelihood of this form of sustain-
ability reporting. Future studies should explore whether IR also goes along with increased shareholder value.
Finally, our study is useful for political decision makers. Contrary to our expectations, the political conditions of a
country do not affect the likelihood of IR. As a consequence, governments may not encourage firms to publish
integrated reports by strengthening investor rights or law enforcements mechanisms but only by law. One of the
first countries that has introduced ‘comply-or-explain’ regulations to foster IR was South Africa in July 2010 (JSE,
2010). In this case, the stock exchange is responsible for monitoring sustainability reporting of firms.
While this study contributes to our knowledge of IR in several ways, it is faced with some limitations that need to
be considered when its results are generalized. Besides this, we see room for further research.
First, the theoretic framework could be extended and a number of further determinants are conceivable; the
political system and the measures of economic development could be further differentiated and a newer version
of the index of La Porta et al. (1998a) could be integrated, for example. Moreover, we decided to implement GRI-
nominated companies as a reference group, while alternative classifications may be applied.
Further research could focus first on the data limits of our study. In particular, IT may be applied to analyze
internal processes that lead companies to publish integrated reports (Burns and Scapens, 2000; Guerreiro et al.
2006). Therefore, IT may be combined with contingency theory (Gupta et al. 1994). This would allow considering
also firm-level characteristics such as size, profit, the degree of multinationality, identification of the most important
stakeholders or sustainability performance.
A second line of future research is empirical studies that apply primary data. Based on the analysis of secondary
data, this study was not able to consider individual motives of IR versus TSR. Moreover, survey data would also allow
for an analysis of firm-specific challenges and outcomes of sustainability reporting. Other research questions for the
future could be the following. What motivates companies to voluntarily publish integrated reports? How does eco-
logical, economic and social performance contribute to IR activity? Are any of the other commonly used theories
DOI: 10.1002/bse
able to explain IR activity? What is necessary to encourage more companies to adopt IR? How do the stakeholders
react to IR? What role does external auditing play for IR? What needs to be done to establish fundamental knowl-
edge for (future) users? Does the value added of mandatory versus voluntary IR differ? In summary, not only is
IR a new area for practitioners, but also it offers ample scope for future research.
Acknowledgements
We would like to thank the GRI for making available the sample of top 5% companies elected by the readers’ choice awards 2009.
We would also like to thank Dirk Holtbrügge and three anonymous referees for their very useful comments.
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Business Strategy and the Environment

Bus. Strat. Env. 21, 299–316 (2012)