An assessment of compliance on corporate governance disclosures in the annual reports: Survey of publicity listed companies in Nairobi Stock Exchange
Kirobi, Gachobe Peter
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For a business to expand and grow, it will require funding from investors. Before investors decide to invest their funds in a particular business, they will want to be as sure as they can be that the business is financially sound and will continue to be so in the foreseeable future. Investors therefore need to have confidence that the business is being well managed and will continue to be profitable. In order to have this assurance, investors look to the published annual report and accounts of the business and to other information releases that the company might make. It is their expectation that the annual report will represent a true picture of the company's present position. Therefore, financial and corporate reporting plays an important role in any given economy. Since publication of annual reports is a statutory requirement, the management may address various components of corporate governance in their annual reports but the extent of disclosures of these components may differ from company to company and also fall short of what is required and recommended. In order to assess the extent of corporate governance disclosure, this research study will use empirical method known as disclosure index. To derive the disclosure index, a thorough analysis of the annual reports will be required whereby items disclosed by a specific company will be benchmarked with those in the checklist. Keeping objectivity criteria this research study used, unweighted disclosure index methodology where all items of disclosure were considered to be equally important. The study employed census technique where all the 52 companies which are listed at the NSE as at 31 st December 2009 were used to assess the level of corporate governance disclosures in the annual reports in Kenya. The study relied on secondary data where annual reports were analyzed to extract items of governance disclosed by various companies. Data collected from the field were coded and analyzed using Statistical Packaged for Social Sciences (SPSS) and interpretations given. The study showed variations in disclosure of various aspects of corporate governance by Kenyan listed companies. In addition, it emerged from the study that certain areas of disclosure require a lot of improvements particularly on communication and relation with the shareholders which reflects low level of disclosure statements in the annual report which would hinder users in making informed investment decisions.