The Effects of Corporate Governance on Timeliness of Financial Reporting of Companies Listed at the Nairobi Securities Exchange

Abstract

Corporate governance continues to receive emphasis in practice and in academic research. The emphasis is due in part to the association between weaknesses in governance and poor financial reporting quality, earnings manipulation, financial statement fraud and weaker internal controls. Academic literature observe that it is better to disclose information sooner rather than later, although there are some tradeoffs. Timeliness of financial reporting is one of the attributes of good corporate governance because shareholders and other stakeholders need information while it is still fresh and the more time that passes between year end and disclosure, the more stale the information becomes and the less value it has. This descriptive study therefore sought to investigate the effect of corporate governance on timeliness of financial reporting of companies listed at the Nairobi Securities exchange. The census study whose target population was all companies quoted at the NSE collected secondary data from published financial statements for a five year period (2009-2014) on: date of financial report, end of financial year, and corporate governance attributes of board size, board diversity and existence of audit committe and its membership. The study finds that on average, the companies listed at the NSE take up to 107 days after end of financial year to release financial statements to the public. The findings show that 12 percent of variations in timeliness of financial reporting is explained by variations in the corporate governance mechanisms. Specifically, increased board size increases the number of days before release which negatively affects the timeliness. Audit committee and board diversity reduces the number of days before the release which improves the timeliness of financial reporting.The study recommends that Financial reporting quality should be a priority of the managers and policy makers to allow investors to make timely informed decisions on economic resources allocation. Corporate governance mechanisms to be put in place should be supportive of this endeavor. Awareness should also be created amongst the academia, practitioners and policymakers on the significance of timely financial reports. Further studies on financial reporting quality aspects especially timeliness should be replicated with a focus on sectoral differences and differences in country contexts while incorporating alternative measures of timeliness of financial reporting.