The Effect of Voluntary Disclosures on the Quality of Financial Reporting for Companies Listed at the Nairobi Securities Exchange
Abstract
Timely information that can be relied on is the most powerful tool in the hands of any
stakeholder within the business environment. This is because the availability of relevant and
reliable information at the right time can cause a stakeholder to make a prudent, efficient and
informed decision and reap returns from having that timely information. Access to such is,
however, a far-fetched illusion to stakeholders following the persistent problems of agency
conflicts and information asymmetry. As a result, availing of some information concerning an
organization’s performance is made mandatory by law and regulation. Even with this mandatory
provision, there is at times a need for an organization to go beyond the set-out thresholds and
avail additional information to its stakeholder in a bid to enhance the quality of its reports. Such
voluntary disclosures are important and as such, an evaluation of whether they have any effect on
the quality of financial information reported is called for. This study investigated the effect that
such voluntary disclosures have on the quality of financial reports by looking at the yearly
reports of organizations listed on the Nairobi Securities Exchange over a five-year period
between 2011 and 2015. This data was coded, cleaned and analysed using the Statistical Package
for Social Sciences version 20. The data was evaluated and analysed using a linear regression
model. The results of the study were a confirmation that there does exist a relationship between
voluntary disclosures and the quality of financial reporting as measured by the extent of earnings
management. This has informed recommendations for policy and practice to preparers of
financial reports and regulators concerning what voluntary disclosures ought to be made
mandatory overtime owing to their great significance. This study recommends that organizations
should have voluntary disclosure over and above the statutory prerequisites set by the
administrative bodies, especially those identifying with Environmental Policy, Cost of Quality
and Corporate Social Responsibility. The government should also exert the same efforts it is
putting in encouraging firms to make corporate governance disclosures to all the other forms of
voluntary disclosures.
Publisher
University Of Nairobi
Subject
Nairobi Securities ExchangeRights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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