Effects of Risk Disclosure on Kenya’s Listed Companies’ Financial Performance

Abstract

Corporate risk disclosure has been used by various stakeholders in decision-making. The ultimate object of the information from the accounting report is to assist the users of the information to predict the returns on their investment and make informed decisions regarding the expected financial performance of the firm. The study aimed at determining the effects of risk disclosure on Kenya’s listed companies’ financial performance. The study was based on the signalling theory and stakeholder theory. The study engaged a descriptive design. This study used the 64 firms listed in the Nairobi Stock Exchange as by the year ended 2016. The research utilized both secondary and primary data sources of data. The secondary data source were the financial statements of listed companies in NSE. The primary source of data was self-administered questionnaires which had both closed and open-ended questions. The study results indicated that operational risk disclosure had a positive coefficient when used as a predictor of financial performance (β = .463; p < 0.05). Study findings also showed that financial risk disclosure had a significant positive effect on financial performance of the firms listed in the NSE (β = .143; p < 0.05). Strategic risk disclosure had a positive effect on financial performance of the firms listed in the NSE (β = .323; p < 0.05). The study makes the following recommendations. First, listed companies should exhibit high standards and propensity to disclose risks that the firms face in their financial statements. Secondly, management should adopt and entrench an organization culture of effective and open communication. They should reduce their power distance and encourage preparers of financial statements not to disclose about the organization’s risks just as a matter of compliance but adopt the practice as a way of informing and creating trust. Lastly, the study recommends that all listed companies should aim at not just attaining the minimum of disclosure requirements set by the NSE and CMA but should also aim at providing adequate information content, increase ease of access of the information and have parsimonious presentation and also ensure that their information is more understandable and comparable.