The Effect of Voluntary Financial Disclosures on the Stock Returns of Firms Quoted On the Nairobi Securities Exchange
DOI:
https://doi.org/10.47604/ijfa.25Keywords:
Financial disclosures, stock returns, corporate social responsibilityAbstract
Purpose: 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.
Methodology: 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.
Results: The study findings indicated that corporate governance, corporate social responsibility, environment accounting, human resource accounting, financial services sector, divided pay out and firm size had a positive relationship with stock returns.
Unique contribution to theory, practice and policy: The study recommended that firms should embrace voluntary financial disclosure as it posits them to many privileges/advantage. 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.
Downloads
References
Akisik, O. & Gal, G. (2011).Sustainability in Businesses, Corporate Social Responsibility, and Accounting Standards: An Empirical Study, International Journal of Accounting and Information Management, 19(3): 304-324.
Barako, D. G. (2007). Determinants of Voluntary Disclosures in Kenyan Companies Annual Reports, African Journal of Business Management, 1(5), 113-28.
Bhattacharya, N., Ecker, F., Olsson, P. & Schipper, K. (2007).Directed and Mediated Associations among Earnings Quality, Information Asymmetry and the Cost of Capital.Working Paper, Duke University and Southern Methodist University.
Botason.C.A. (1997).Disclosure Level and the Cost of Equity Capital.The Accounting Review; 72, 3; 323.
Bruslerie, H. & Gabten, H. (2011).Voluntary Financial Disclosure, the Introduction of IFRS and Long-Term Communication Policy: An Empirical Test on French Firms.
Deegan, C. (2010). An Examination of the Corporate Social and Environmental Disclosure of BHP from 1983-1997: A Test of Legitimacy Theory. Accounting, Auditing & Accountability Journal, 15(3), 312-343.
Diamond, D.W. (1984). Financial Intermediation and Delegated Monitoring, Review of Economic Studies 51, 393-414.
Fama, E., & French, K. (1992).The Cross-Section of Expected Stock Returns.Journal of Finance, 47, 427–65.
FASB, (1980).Statement of Financial Accounting Concepts No. 2: Qualitative Characteristics of Accounting Information, Financial Accounting Standards Board, Connecticut 06856.
Feng, G.& Li, Q. J. (2007).The Credibility of Voluntary Disclosure and Insider Stock Transactions.Journal of Accounting Research, 45(4).
Hail, l. (2002).The Impact of Voluntary Corporate Disclosure on the Exante Cost of Capital for Swiss firms.The European Accounting Review, 11(4), 41-73.
Healy, M. P. &Palepu, G. K. (2001).Information Asymmetry, Corporate Disclosure, and the Capital Markets: A Review of Empirical Disclosure Literature.Boston: Graduate School of Business, Harvard University.
Iatridis, G. (2009). Accounting Disclosure and Firms' Financial Attributes:Evidence from the UK Stock Market.International Review of Financial Analysis 17,pp 219-241.
Jensen, M. &Meckling,W.H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure.Journal of Financial Economics 3, no. 3: 305-360.
Jouiroua, M. &Chenguel, B. (2014). The Determinants of Voluntary Disclosure in Tunisia: A Study of the Firms Listed in the Tunisian Stock Exchange. Journal of Business and Management Research, 4, pp86-97.
Kothari, S., Li, X. &Short, J. (2009).The Effect of Disclosures by Management,Analysts, and Business Press on Costof Capital, Return Volatility, andAnalyst Forecasts: A StudyUsing Content Analysis. The Accounting Review 84, (5), pp. 1639–1670.
Laohapolwatana, T., Smith, M. &Howieson, B. (2005).The Impact of Voluntary Disclosure on Sell-side Analyst Stock Recommendations: Australian Evidence. University of South Australia, Working Paper No 0511.
Laswad, F., Fisher, R. &Oyelere, P. (2001).Public Sector Financial Disclosure on the Internet: A Study of New Zealand Local Authorities. Commerce Division Discussion Paper No. 92
Leuz, C., Verrecchia, R., 2000. The Economic Consequences of Increased Disclosure.Journal of Accounting Research38, in press.
Lopokoiyit, P. M. (2012). The Effect of Corporate Governance Practices on the share prices of Companies Listed at the Nairobi Securities Exchange.UnpublishedMscFinanceProjectoftheUniversity of Nairobi.
Meek G. K., Roberts C. B.&Gray S. J. (1995).Factors Influencing Voluntary Annual Disclosures by U.S., U.K., and Continental European Multinational Corporations. Journal of International Business Studies 26(3), 555-572
Muthamia, G. (2013).The Effect of Financial Distress on Stock Returns of Firms Quoted at the Nairobi Securities Exchange. Unpublished Master’s Thesis, University of Nairobi.
Mwirichia, M. (2008).A Survey of Corporate Governance Disclosures among Kenyan Firms Quoted at Nairobi Stock Exchange. Unpublished Master’s Thesis, University of Nairobi.
Onkoba, K. (2008). The Effect of Selected Accounting Variables on Stock Liquidity for Firms Listed at the Nairobi Securities Exchange. Unpublished Master’s Thesis, University of Nairobi.
Oyugi, F. (2007).The Relationship between Frequency of Financial Disclosures and Financial Performance of Companies Quoted at the Nairobi Stock Exchange.Unpublished Master’s Thesis, University of Nairobi.
Ponnu, C. H., & Maurice, A. O. (2009).Corporate Social Responsibility Disclosure In Kenya: The Nairobi Stock Exchange.African Journal of Business Management , 3 (10), 601-8.
Rahman, Z. D. (2010). The Impact of Internet Financial Reporting on Stock Prices Moderated by Corporate Governance: Evidence from Indonesia Capital Market. Available at SSRN: http://ssrn.com/abstract=1576327 or http://dx.doi.org/10.2139/ssrn.1576327
Shiller, R.J. (2000).Measuring Bubble Expectation and Investor Confidence.Cowles Foundation for Research in Economics, Yale University.
Suka, A. (2011). An Empirical Investigation of the Information Content of Profit Warnings Announcements for Companies Quoted at the NSE. Unpublished Master’s Thesis, University of Nairobi.
Velashani, M. A. & Mehdi, A. (2008).The Economic Benefits of Voluntary Disclosure with Particular Reference to Environmental Disclosure.Monash Business Review, 4 (2), 1-8.
Verrecchia, R.E.(2001). Essays on Disclosure.Journal of Accounting and Economics 32: 97- 180.
Walter, A. (2006). Intra-Industry Imitation in Corporate Environmental Reporting: An International Perspective. Journal of Accounting and Public Policy, 25(3), 299-331.
Wanyonyi, D. M., & Olweny, T., (2011).Effects of Corporate Governance on the Financial Performance of Listed Insurance Companies. Public Policy and Administration Research 4 23-35.
Zareian, M. (2012).Voluntary Disclosure of Information and Stock Returns.International Journal of Engineering Research and Applications (IJERA), 2(3), 2762-66.
Downloads
Published
How to Cite
Issue
Section
License
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution (CC-BY) 4.0 License that allows others to share the work with an acknowledgment of the work’s authorship and initial publication in this journal.
