The relationship between Voluntary Disclosure and financial perfomance of selected companies quoted at the Nairobi Securities exchange

Abstract

This paper sought out to examine empirically the relationship between Voluntary Disclosure and Financial Performance measure, Return on Investment (ROI), of selected companies quoted at the Nairobi Securities Exchange. Annual reports of 10 listed companies from the NSE 20-share index were investigated from the year 2011-2013. A disclosure checklist consisting of 49 voluntary disclosure items of information was used. A regression analysis was conducted on the data set using Excel 2007. Findings revealed that the individual predictor variables produced mixed results when regressed against ROI. However, the multivariate regression analysis depicted that there is a strong positive relationship between voluntary disclosure and financial performance measure, as evidenced by a Pearson Product Moment Correlation Coefficient of 0.6235 obtained from the multiple linear regression model. As such, given a Coefficient of Determination of 0.3888, only 38.9% of the data points appeared on the linear plot indicating that 61.1% of the variations in ROI are reduced by taking into consideration other factors outside of the regression model. Additionally, the hypotheses developed as were rejected suggesting there is a link between voluntary disclosure variables and ROI. Since voluntary disclosure comes with a cost, this study recommends that managers in organizations disclose more information voluntarily not only for the purposes of obtaining cheaper capital but also it increases transparency and accountability in annual reporting and this boosts the confidence of investors as they make investment and financial decisions.