The Effects of Corporate Governance on Timeliness of Financial Reporting of Companies Listed at the Nairobi Securities Exchange
Abstract
Corporate governance continues to receive emphasis in practice and in academic
research. The emphasis is due in part to the association between weaknesses in
governance and poor financial reporting quality, earnings manipulation, financial
statement fraud and weaker internal controls. Academic literature observe that it is better
to disclose information sooner rather than later, although there are some tradeoffs.
Timeliness of financial reporting is one of the attributes of good corporate governance
because shareholders and other stakeholders need information while it is still fresh and
the more time that passes between year end and disclosure, the more stale the information
becomes and the less value it has. This descriptive study therefore sought to investigate
the effect of corporate governance on timeliness of financial reporting of companies
listed at the Nairobi Securities exchange. The census study whose target population was
all companies quoted at the NSE collected secondary data from published financial
statements for a five year period (2009-2014) on: date of financial report, end of financial
year, and corporate governance attributes of board size, board diversity and existence of
audit committe and its membership. The study finds that on average, the companies listed
at the NSE take up to 107 days after end of financial year to release financial statements
to the public. The findings show that 12 percent of variations in timeliness of financial
reporting is explained by variations in the corporate governance mechanisms.
Specifically, increased board size increases the number of days before release which
negatively affects the timeliness. Audit committee and board diversity reduces the
number of days before the release which improves the timeliness of financial
reporting.The study recommends that Financial reporting quality should be a priority of
the managers and policy makers to allow investors to make timely informed decisions on
economic resources allocation. Corporate governance mechanisms to be put in place
should be supportive of this endeavor. Awareness should also be created amongst the
academia, practitioners and policymakers on the significance of timely financial reports.
Further studies on financial reporting quality aspects especially timeliness should be
replicated with a focus on sectoral differences and differences in country contexts while
incorporating alternative measures of timeliness of financial reporting.
Publisher
University of Nairobi