Integration in Financial Communication: An Analysis of Determinants in Strategic Plans and Annual Reports

A large literature has focused on short-term forward-looking disclosures, which are widely used by listed companies to meet investors’ demand. This paper shifts the focus on a longer time-horizon in forward-looking disclosure through the analysis of the strategic plan. In such a perspective, the primary purpose of this paper is to explore the connection between strategic plans and annual reports, with particular reference to continuity and comparability of information. The study is based on the idea that it is essential that forward-looking disclosure is integrated with reported results. In such a perspective, integration is reached when investors are able to verify whether the previously disclosed strategic and financial targets have been hit. It allows users not only to interpret corporate disclosures but also to have an indication of the likely reliability of future financial forecasts. In pursuit of that objective, the paper develops the concept of integration and advances a proposal for an index to measure integration between forward-looking and past financial disclosures, based on the comparison of data released in strategic plans and in the following annual reports. Additionally, we investigate the determinants of integration between disclosures of forward-looking information and results released in annual reports. Building on voluntary disclosure literature, the analysis takes into consideration two explanatory factors: (i) firm size, and (ii) firm performance.