Relationship between voluntary financial statements disclosure and financial distress of manufacturing firms listed in Nairobi Securities Exchange

Abstract

For manufacturing firms, there are usually key issues whose efficiency in operation matters a lot and in case a firm is encountering financial distress there are high chance of turning into bankruptcy which determine asset restructuring. Another reason that could trigger financing distress is the choice of source of financing. For instance, in the case where a firm may have the right mix of asset but poor financing may tend to be financially stable in the long run though in the short run may experience financial distress. The last reason is due lack of efficient team of management, that is, the firm may have right mix of assets and source of funds but absence of efficient managers of the firm resources may lead the company into financial difficulty. Firm listed under the manufacturing sector demands for huge long term financial investment which may pose a threat to financing method and consequently increase the chances of financial distress. It is in this back drop that the current study sought to examine the relationship between voluntary disclosure and financial distress among listed manufacturing companies. The study was hinged on agency, signaling and stakeholder theory. A correlation research design was adopted. The target population constituted the nine manufacturing companies listed in NSE and a census survey was used to select all. Descriptive analysis revealed that listed manufacturing companies had an average Altman’s Z score of 2.09 which means the listed entities in Kenya have a safe financial profile and are not likely to go bankrupt. There was a positive and significant relationship between each of the specific disclosures (non-financial information disclosure, governance information disclosure, strategic information disclosure and financial information disclosure) and financial distress among manufacturing companies listed in NSE. There is need to voluntarily disclose information so as to minimise the chances of financial distress.