The Effect of Voluntary Disclosures on the Stock Returns of Firms Listed at the Nairobi Securities Exchange

Abstract

In every organisation, managers act as stewards of the company resources for the owners of the company. As such they report regularly to the owners on the company‟s performance disclosing the statutorily required information as regulated by various authoritative bodies. Managers in their reporting disclose information beyond requirements such as generally accepted accounting principles where the information is believed to be relevant to the decision-making of users of the company's annual reports. Voluntary disclosure is carried out by many companies, although the extent and type of voluntary disclosure differs by geographic region, industry, and company size. This study sought to establish the effect of voluntary disclosures on stock returns of firms listed at the Nairobi Securities Exchange. Through content analysis of annual audited financials reports of companies in the banking and construction and allied industries, 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, background about the company and information about intangible assets on stock returns. The results obtained from the model indicate that voluntary disclosure of firm‟s information has positive impact on stock return. Disclosure on business data, forward looking information, background about the company and information on intangible assets not disclosed in the financial statements positively impact on the firm‟s stock returns. However, information on management analysis of business data and information about management and shareholders has negative implication on company‟s stock return.