Integrated reporting and earnings quality: the mediating effect of corporate governance among IR-adopters and non-IR adopters

Earnings quality (EQ) is a key indicator of a company’s financial health but can be compromised by creative accounting practices that distort true performance. Integrated Reporting (IR) addresses this issue by enhancing transparency, accountability, and corporate governance. This study examines the impact of IR on EQ through Corporate Governance (CG) in firms listed on the Indonesia Stock Exchange from 2017 to 2021. A total of 76 companies, comprising 38 IR adopters and 38 non-IR adopters, were analysed using STATA. The study adopts a path analysis approach based on causal mediation analysis combined with bootstrapping to test the direct and indirect effects of IR on EQ. The results reveal that IR significantly influences EQ for IR adopters and non-IR adopters. For IR adopters, path analysis and bootstrapping show a stronger direct effect of IR on EQ. Additionally, CG mediates the relationship between IR and EQ for IR adopters, where IR has a significant indirect effect on EQ through CG, indicating that improvements in corporate governance strengthen the impact of IR on EQ. For non-IR adopters, while path analysis suggests a potential indirect effect, bootstrapping does not confirm its significance. In this group, the direct effect of IR on EQ is evident, but the mediation through CG is weaker and less consistent. This study underscores the importance of adopting an IR framework to improve transparency, strengthen governance, and enhance earnings quality. It contributes to the literature by addressing the gap in understanding the indirect effects of IR on EQ through governance mechanisms. Future research should explore additional IR attributes, like guiding principles disclosure, and examine moderating variables such as cash flow volatility (Cvol) to better understand their impact on EQ. These findings provide valuable insights for academics, policymakers, and regulators aiming to enhance corporate transparency and accountability.