Assessment of the influence of corporate risk disclosure determinants on the share returns of listed companies in Kenya

Abstract

Despite corporate risk disclosures (CRD) being widely encouraged and gaining increasing concern by regulators and market participants, the determinants of those disclosures remains relatively unknown. Concerns have been raised by scholars, practitioners and other market participants regarding the relevance of increasing CRD by listed companies in Kenya. This study sought to assess the influence of CRD determinants on share return of listed companies in Kenya. This study used descriptive research design and multiple regression analysis to determine key determinants of the level of CRD and the influence on share return. Using a disclosure index comprising 37 information items, the study employed content analysis of audited financial reports to determine the level of CRD by 36 listed companies in Kenya over the period 2008-2014.To corroborate the results, questionnaire data obtained the managers’ perspective. Six hypothesis were tested from the regression results .The findings revealed a relatively low level of CRD with listed companies disclosing more business risk and less credit risk .The finding revealed a positive relationship between the level of CRD and stock returns of listed companies in Kenya .The study highlighted the need for companies to increase the level of disclosures by revealing the factors influencing the level of corporate risk disclosures. The findings revealed that the level of corporate risk disclosure is significantly and positively influenced by the type of auditor, institutional equity ownership concentration and negatively influenced by existence of audit committee and the board composition. The study highlighted the need for degree of caution in choosing the type of auditor. Since the study relied extensively on disclosures provided by companies in the audited financial statements as established using content analysis, a study of disclosures using other publications like internal management reports may be necessary. Further study may also be necessary to assess the relevance of corporate risk disclosure involving more listed companies over an extended period of time. Despite the study assessing relevance of CRD in a single country setting, it contributes to the extant literature on relevance of CRD in a developing country.