The effect of voluntary disclosure on stock market returns of companies listed at the Nairobi securities exchange

Abstract

Transparency and disclosure represent one of the pillars of corporate governance. Numerous scandals have occurred worldwide due to lack or improper corporate disclosures. It has been argued that managers should voluntarily disclose information that would satisfy the needs of various stakeholders. Voluntary disclosure is aimed at providing a clear view to stakeholders about the business’s long-term sustainability and reducing information asymmetry and agency conflicts between managers and investors. 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. The objective of this study is to determine the effects of voluntary disclosures on stock market returns of companies listed at the Nairobi Securities Exchange. The findings can help stock market participants understand the implications of voluntary disclosures on the company’s stock returns. Company executives can therefore make an informed decision in engaging on voluntary disclosures. To the stock traders, the research can help them determine how to action after voluntary disclosures, so as to earn better returns for their investments. This research studied the effects of voluntary disclosures on stock market returns for the organizations listed at the NSE. The NSE is divided into 10 different sectors. Samples of 20 companies were selected from the 10 different sectors. The model shows a goodness of fit as indicated by the coefficient of determination r² with value of 0.583. This implies that independent variables both explain 58.3% of the variations as a result of the factors affecting the market performance. 41.7% of variations are brought about by factors not captured in the objectives. The study recommends companies to have voluntary disclosure above the statutory requirements set by the regulatory bodies since it can work as a good corporate governance tool. There was a strong positive significant relationship was that was obtained between voluntary disclosure and stock returns therefore, the firms can increase stock returns by increasing voluntary disclosure. The government should also put more regulation on disclosure to ensure that individuals investing get more information.