Relationship Between Voluntary Disclosures and Financial Performance of Companies Listed at the Nairobi Securities Exchange

Abstract

A key avenue for management to communicate information relating to a company to stakeholders is through financial reporting and disclosures. Often, shareholders and other stakeholders rely on annual reports to make their investment and financial decisions and as a result, the problem of voluntary disclosure in the financial statements has been in the attention of many researchers in the recent past. Annual reports may contain both mandatory and voluntary information. Voluntary information in the annual reports is made by managers in the spirit of openness and transparency and may contain vital information that may assist all interested parties to make wise decisions. This research sought to perform an empirical analysis of the relationship between voluntary disclosures and financial performance of companies quoted at the NSE. The results indicated that the individual predictor variables produced strong positive relationship when regressed against ROI, similarly, the multiple regression of the predictor variables against ROI produced a strong relationship. This research provides a framework that guides accounting practitioners and all consumers of financial information on impact of various classes of voluntary disclosures on financial performance. This study contributes to literature by providing insights into what style of financial reporting disclosures contribute to financial performance in a developing country where there is weak enforcement. The research concludes by recommending firms to provide comprehensive disclosures to effectively mitigate informational asymmetries between the stakeholders and management