The Effect of Voluntary Disclosure on Stock Returns of Companies Listed at the Nairobi Securities Exchange

Abstract

Managers execute their steward role of managing the affairs of the organizations on behalf of the shareholders. They are therefore required to report their conduct and practices to them periodically. To protect the shareholders, financial and accounting standards board regulators, auditors and governments conduct an oversight role and act as watchdogs to guard against any misconduct by the managers. As such, there is specific financial information that is statutorily required to be reported. However, 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. This study sought to establish the effect of voluntary disclosures on stock returns of companies listed in the Nairobi Securities Exchange. Using a content analysis of annual reports of companies composing the NSE 20 Share Index, the study sought to establish the effect of voluntary disclosures such as; business data,analysis of business data, forward-looking information and information about management and shareholders,individually and jointly on stock returns. The findings revealed that there is no relationship between voluntary disclosures and stock returns.Through SPSS analysis, the study obtained a coefficient of determination of 0.171 and a Pearson Product Moment coefficient of correlation of 0.029 (near to 0.00) for the multiple linear regression model representing the relationship between voluntary disclosures and stock returns of the companies. Hence, only 17.1% of the data points would be mapped ona linear plot. The Pearson Product Moment (correlation coefficient) obtained was 0.03 depicting no relationship between voluntary disclosures and stock returns.The results of the study confirmed the findings established elsewhere by Zareian and Hail in other markets.