Value Relevance of Non-Financial Disclosures in Annual Reports: Evidence from Listed Banks in Kenya

Abstract

The main objective of this study was to investigate the value relevance of non-financial disclosures in annual reports, with a focus on listed banks in Kenya. To do so, the study used content analysis to quantify five non-financial disclosures, namely – risk disclosure, corporate social responsibility disclosure, corporate governance disclosure, the chairman’s statement and related party disclosure included in the annual reports released by ten banks listed on the Nairobi Securities Exchange (NSE) over the entire period from year 2010 to year 2015. The study adopted a descriptive research design. Secondary data obtained from the Nairobi Securities Exchange records comprising of corporate action register and handbook, and daily market statistics, and from annual reports released by the studied banks from year 2010 to year 2015 was mainly used in this study. Content analysis program ATLAS.ti 8, Harvard IV dictionary and Ms Excel 2007 were used for content analysis process in which the non-financial disclosures were quantified. Primary data obtained through an opinion survey questionnaire administered on the respondents who were financial analysts at licensed investment banks, stock brokers, fund managers and investment advisers as at 30 April 2016 was used to triangulate the results of secondary data. Data analysis was carried out using SPSS version 20 and Stata 13. Descriptive statistics and inferential statistics were used for analysis. Statistical t-test was used to test the significance of independent variables on dependent variable. The results revealed that risk disclosure, corporate social responsibility disclosure, the chairman’s statement and related party disclosure in annual reports had a positive and significant relationship with the market value of the firms which was measured by the annual average market price per share. Regression analysis result also revealed that there is a significant positive relationship between corporate governance disclosure and average market price per share, for listed banks in Kenya. This study therefore concluded that non-financial disclosures in annual reports of listed banks in Kenya have an impact on investment decisions and therefore they are value relevant. The study recommends both an expanded role of the auditor in reviewing and reporting on non-financial disclosures, and more guidelines and regulations in relation to non-financial disclosures to ensure that firms put clearer and relevant information into the hand of investors.