Effect of Board Characteristics on Readability of Financial Statements of Kenyan Listed Companies

Abstract

Readable information enables users of financial statements make good informed financial decisions. However, if firm financial performance is poor management who are responsible for financial statement preparation may obfuscate financial statements to hide the poor performance. This research set out to investigate whether board and firm characteristics are related readability of financial statements of Kenyan listed firms as measured by Flesch readability ease scores. The population and sample of 59 companies listed in the NSE over a 5 year period between years 2013 to 2018.  Panel data regression model was employed and the findings indicated that female directors and board size have a significant and positive effect on the readability of financial statements while file size had a significant and negative effect on the readability of financial statements of Kenyan listed companies. Regulators should thus encourage firms to increase the number of women in boards and also increase the board sizes and reduce the size of financial statements to boost the readability of financial statements.

Keywords:       Readability; Financial Statements; Obfuscation; Board; Firm Characteristics