Relationship between profitability and voluntary disclosure: a case study of banks in Kenya

Abstract

The purpose of this study was to determine the extent and the factors that affect voluntary disclosures levels in the annual financial reports of listed and unlisted banks in Kenya. Specifically, the main objective was to investigate if there is a relationship between banks profitability and voluntary corporate disclosure practices in the banking sector for the year 2013. So far, in Kenya, there is no published study that has examined the same. To assess disclosure levels of 31 listed and unlisted commercial banks, a self constructed un-weighted disclosure index of 40 items was applied to banks’ annual financial reports. The data was analyzed using descriptive and Ordinary Least Square (OLS) regression analysis. The results show that the average voluntary disclosure levels of commercial banks is at 62.8 %. Regression results indicated that Bank profitability, listing status and age of the commercial bank are positively and significantly associated with voluntary disclosure levels. In contrast, Age of the bank and liquidity status reported an insignificant effect on the voluntary disclosure levels. Following the findings, there is need for regulatory agencies in Kenya to strengthen the implementation of the already placed disclosure framework in order to improve the general levels of disclosure. In addition, focus should now be shifted to the unlisted banks which form the largest proportion in the banking sector. Finally less profitable banks should be given incentives and be more sensitized about benefits of releasing adequate extra information to the public.