Is There a Link Between Voluntary Disclosure on The Value of the Firm as Well as on The Cost of Capital of Commercial Banks in Kenya?

Abstract

This study had set out to evaluate if there are any positive or negative effects of voluntary disclosure on the financial performance of commercial banks in Kenya. Secondly, this study to establish whether voluntary disclosure has any effect on the value of the firm as well as on the cost of capital. Hence provide evidence on the effects of voluntary disclosure on the financial performance of commercial banks in Kenya. This study used a descriptive research design based on secondary data obtained from published statements of accounts of commercial banks in Kenya and CBK. The population of this study used 42 commercial banks registered by the Central Bank of Kenya and operating in Kenya. The study was based on secondary data collection since they provide a more realistic conclusion to meet the objectives of the study. Data was mainly collected from the publicly available information that was the published annual reports of a sample of 20 from 44 commercial banks in Kenya. The study was carried out for a period of 6 years from 2008 to 2013. The variables used in the study consisted of a dependent and four independent variables. The dependent variable was return on equity which is a proxy for measuring financial performance. The determinants of voluntary disclosure were used as a proxy to measure voluntary disclosure. The study developed a disclosure index based on the explanatory variables based on a multiple regression model. The study concludes that firms should lean towards disclosure of financial and social and board disclosure to increase their performance. The study conforms to the studies reviewed in terms of a positive relationship between financial disclosure and financial performance and a positive relationship between company size and financial performance. It can be concluded that over the years, corporate governance has been gaining awareness from the public and investors and there is a satisfactory level of voluntary disclosure practised by commercial banks in Kenya especially financial data disclosure and social and board disclosure. Therefore disclosure practises and requirements should apply across board no matter the size of the bank in order to provide as much information to all interested stakeholders.