The Effect of Voluntary Financial Disclosures on the Stock Returns of Firms Quoted On the Nairobi Securities Exchange

Abstract

Purpose: The main purpose of this study is to establish the effect of voluntary financial disclosures on the stock returns of companies listed at the Nairobi Securities Exchange.Methodology: The main purpose of this study is to establish the effect of voluntary financial disclosures on the stock returns of companies listed at the Nairobi Securities Exchange. This study used a descriptive study design. The population of the study was all the 61 firms listed at the NSE as at December 2013. The sampling technique was purposive or judgmental, as the study purposively chose the 20 companies consistently making up the NSE –20 share index between 2009 and 2013 (five years) because they are rich in information and are blue chip. The study used secondary data from the Capital Markets Authority (CMA). The selected period was year 2009 to year 2013 (5 years).The particular secondary data was extracted from financial statements of sample firms and from the Nairobi Securities Exchange handbook for the five years period of study, from 2009 to 2013.The researcher used frequencies, averages and percentages in this study. The researcher used Statistical Package for Social Sciences (SPSS) version 20 to generate the descriptive statistics, trend analysis and also to generate inferential results. A multivariate regression model was used to link the independent variables to the dependent.Results: The study findings indicated that corporate governance, corporate social responsibility, environment accounting, human resource accounting, financial services sector, divided pay out and firm size had a positive relationship with stock returns.Unique contribution to theory, practice and policy: The study recommended that firms should embrace voluntary financial disclosure as it posits them to many privileges/advantage. These advantages may include; easy access to external financing, securing a good name with governmental and non-governmental organizations, having a good public image. In addition, the study recommends that firms should ensure a balance of their debt to equity as increased debt is seen to cause a reduction on the stock returns.