Firm Specific Characteristics and Level of Voluntary Disclosure by Commercial Banks in Kenya
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Date
2024-06
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Kenyatta University
Abstract
The importance of bank transparency and disclosure is to promote the stability in the sector through the adaptation of the needed regulatory tools. Banks can cause large economic ramifications if they fail due to information asymmetry. The Kenyan banking sector has come under close scrutiny by the stakeholders due to the past decade instability. There has been a steady improvement in disclosure levels on both the extent and quality for banks over the years despite there being no uniformity in the disclosure by banks in Kenya over the same period. Due to this a lot of concerns has been generated among the people on the worth of financial information reported in the country. In the yearly reports of entities, voluntary information should be provided adequately as this will influence the decision by the potential shareholders and others who use accounting information and will also guarantee consistency, reliability, transparency and comparability of these reports. The research sought to establish firm specific characteristics effects and level of voluntary disclosure by Kenya’s commercial banks. The objectives were; to establish how profitability, leverage, firm size and liquidity affect the level of voluntary disclosure by Kenyan commercial banks. The research moderated the effect of board independence on firm specific characteristics and the level of voluntary disclosure by commercial banks in Kenya. Five theories; agency, signaling, credit need, stakeholder and legitimacy theories guided the study. Explanatory and positivistic philosophy study design were deployed. The study target populated was 41 banks licensed by the CBK out of which 38 banks were selected using purposive sampling method over a period of 2013-2020. Data required for analysis was extracted and compiled from financial statements by use of a document review guide. The gathered data was evaluated through both descriptive and inferential statistics. Descriptive analysis was performed and displayed through the mean, mode, median, standard deviation as well as ratios. Pearson correlation analysis was done to show correlation between variables. In investigating how the variable relates, panel regression model was used. Diagnostics test conducted includes heteroscedasticity, multicollinearity, normality test, panel unit root, autocorrelation, and random or fixed effects test. The results indicated existence of a positive and significant connection between profitability and level of voluntary disclosure by commercial banks. Similarly, firm size positively and notably associated with the voluntary disclosure level. Liquidity positively and notably related with the voluntary disclosure level. However, Leverage had a significant negating effect on the voluntary disclosure level. Further, board independence was found to be significant moderator on how firm specific characteristics and voluntary disclosure level related. The findings reveal that firm characteristics; profitability, size, leverage and liquidity are a significant predictor of voluntary disclosures. This research recommends that above the set statutory requirements, commercial banks should disclosure more information voluntarily. Also a harmonized guide for voluntary disclosure should be created for all banks by the regulator. The study gives gainful insights to regulatory bodies particularly the ones with interest to enhance the legal framework for financial reporting and corporate governance in the emerging economies. The study also offer policy makers with information on possible weaknesses to the financial reporting laws while analysts, stock brokers, potential and existing investors will benefit on how to make informed investment decisions as well as researchers interested in furthering the study.
Description
A Thesis Submitted to School of Business, Economics & Tourism in Partial Fulfillment for the Award of Degree of Doctor of Philosophy in Business Administration (Finance) of Kenyatta University June, 2024
Supervisors:
1. Ambrose Jagongo
2. Lucy Wamugo