Effect Of Voluntary Disclosures On Quality Of Financial Reports: A Case Study Of Six Large Banks In Kenya

Abstract

The objective of this study is to determine the effects of voluntary disclosure on quality of financial reports. Whereas mandatory disclosure is regulated, VD is discretionary information published willingly by firms’ managers and non-disclosure creates an information gap. Extensive disclosures reduces the gap and result to high quality reports. For this study specific quality determinants of VD include, information on DMGT, MD&A and CSR. Descriptive research design was used and secondary data was collected from annual reports of 6 large banks from 2012 to 2016 and analyzed using disclosure index of 47 items split into the three variables. The extent of disclosure is measured as percentage of the total and for quality using four ratings (0-3) based on absence and the degree of specificity of each item. On average, 6 banks disclosed 49% of items with an average rating 2.11, which indicates that their financial reports of good quality. There was improvement on disclosures between 2012 to 2016 indicating possible high disclosure levels in future. Disclosing information on the three variables contribute to high quality reports. I recommended users to be involved and banks to further improve disclosure level. More research on each of the variables can be done.