The effect of voluntary disclosure on stock market returns of companies listed at the Nairobi securities exchange
Abstract
Transparency and disclosure represent one of the pillars of corporate governance.
Numerous scandals have occurred worldwide due to lack or improper corporate
disclosures. It has been argued that managers should voluntarily disclose information
that would satisfy the needs of various stakeholders. Voluntary disclosure is aimed at
providing a clear view to stakeholders about the business’s long-term sustainability and
reducing information asymmetry and agency conflicts between managers and investors.
Business organizations have over the years reported financial and non-information to
the shareholders and the general public. Included in their reporting are voluntary
disclosures, some of which are not statutorily required to be reported. Notably, every
release of information by an organization has got some cost implication to the firm and
therefore the value addition of such voluntary disclosure ought to be evaluated. The
objective of this study is to determine the effects of voluntary disclosures on stock
market returns of companies listed at the Nairobi Securities Exchange. The findings can
help stock market participants understand the implications of voluntary disclosures on
the company’s stock returns. Company executives can therefore make an informed
decision in engaging on voluntary disclosures. To the stock traders, the research can
help them determine how to action after voluntary disclosures, so as to earn better
returns for their investments. This research studied the effects of voluntary disclosures
on stock market returns for the organizations listed at the NSE. The NSE is divided into
10 different sectors. Samples of 20 companies were selected from the 10 different
sectors. The model shows a goodness of fit as indicated by the coefficient of
determination r² with value of 0.583. This implies that independent variables both
explain 58.3% of the variations as a result of the factors affecting the market
performance. 41.7% of variations are brought about by factors not captured in the
objectives. The study recommends companies to have voluntary disclosure above the
statutory requirements set by the regulatory bodies since it can work as a good corporate
governance tool. There was a strong positive significant relationship was that was
obtained between voluntary disclosure and stock returns therefore, the firms can
increase stock returns by increasing voluntary disclosure. The government should also
put more regulation on disclosure to ensure that individuals investing get more
information.
Citation
Master of Science in FinancePublisher
University of Nairobi
Description
Master of Science in Finance