How Integrated Thinking Can Be Detected in Management Disclosures in Annual Reports: Insights from a Large-Scale Text-Analysis Approach

Abstract

Integrated Thinking has been promoted as a way of revolutionizing decision-making to create sustainable value. Our study shows how disclosures made by managers in annual reports can reveal aspects of Integrated Thinking within organizations. We develop a new dictionary-based measure of Integrated Thinking and apply our measure to two samples: 685 reports over a nine-year period from South Africa, where Integrated Reporting is mandatory, and a matched sample of European firms where such reporting is voluntary. We provide evidence that our Integrated Thinking measure is distinct from overall reporting quality and generic ESG and CSR disclosures and is more nuanced and variable over time than Integrated Thinking proxies used in the prior literature. Our new measure is positively and significantly associated with improved return on assets (influenced by real decisions made by managers rather than capital market participants). Our findings will be of interest to reporting bodies, practitioners, and academics.