The Effect of Voluntary Financial Disclosures on the Stock Returns of Firms Quoted on the Nairobi Securities Exchange
Abstract
Business organizations have become aware of the importance of presenting
information about the broader range of activities including both their financial
performance and non-financial performance such as socially responsible performance.
Regulations on mandatory supply of financial information through statements are not
the only reason why organizations provide financial information but firms provide
information beyond the mandatory requirements. The main purpose of this study is to
establish the effect of voluntary financial disclosures on the stock returns of
companies listed at the Nairobi Securities Exchange. This study used a descriptive
study design. The population of the study was all the 61 firms listed at the NSE as at
December 2013. The sampling technique was purposive or judgmental, as the study
purposively chose the 20 companies consistently making up the NSE –20 share index
between 2009 and 2013 (five years) because they are rich in information and are blue
chip. The study used secondary data from the Capital Markets Authority (CMA). The
selected period was year 2009 to year 2013 (5 years).The particular secondary data
was extracted from financial statements of sample firms and from the Nairobi
Securities Exchange handbook for the five years period of study, from 2009 to
2013.The researcher used frequencies, averages and percentages in this study. The
researcher used Statistical Package for Social Sciences (SPSS) version 20 to generate the descriptive statistics, trend analysis and also to generate inferential results. A multivariate regression model was used to link the independent variables to the dependent. The study concluded that; increase in corporate governance voluntary
disclosure results to increase in the levels of stock returns, increase in corporate social responsibility voluntary disclosure results to increase in the levels of stock returns. increase in human resource accounting voluntary disclosure results to increase in the levels of stock returns and increase in firm size voluntary disclosure results to increase in the levels of stock returns. The study recommended that firms should embrace voluntary financial disclosure as it posits them to many
privileges/advantages. These advantages may include; easy access to external
financing, securing a good name with governmental and non-governmental
organizations, having a good public image. In addition, the study recommends that
firms should ensure a balance of their debt to equity as increased debt is seen to cause a reduction on the stock returns. To the government, the study recommends the tax levies should be reviewed in a bid to improve the performance of the firms. As a result the stock returns of these firms would increase.
Publisher
University of Nairobi