Accounting Disclosures and Firm Value of Commercial Banks Listed on the Nairobi Security Exchange, Kenya

Abstract

Accounting Disclosures and Firm Value of Commercial Banks Listed on the Nairobi Security Exchange, Kenya 1. Introduction and Background Over the last few decades, there has been an increase in the use of International Financial Reporting Standards (IFRS) and its predecessor the International Accounting Standards (IAS) in major corporations across the globe (Alfraih & Alanezi, 2015). According to the International Accounting Standards Board (IASB) (2014) more than 130 countries have adopted the use of the IFRS. The principle objective of having IFRS is to ensure high-quality reporting standards by companies. However, over the same period, there has been an endless stream of corporate collapses and scandals that were attributed to poor accounting standards and disclosures (Yink, Jide, & Emmanuel, 2015). Some of the scandals included Enron, Xerox, Reliant Resources, Global Crossings, CUC International, Adelphia Communications, Waste Management, Rite Aid and World Com (Waweru, 2018). The Xerox and Enron scandal combined cost the economy of the United States more than $ 35 billion. These scandals have not been limited to the United States with numerous scandals being reported across the globe. In Kenya, various companies have been involved in the misappropriation of funds including Simple Homes Holding Cooperatives, Haco Tiger Brands, Dubai Bank, Imperial Bank, Uchumi, CMC Holdings, Mumias Sugar and Kenya Airways (Guguyu.2015; Mwiti, 2017). Following the closure of Chase Bank in 2016, it emerged that more than Kshs. 16.6 billion had been lent to the bank insiders most of whom were the banks directors. This information had not been disclosed by the banks auditors despite it being a mandatory requirement (Herbling, 2016). This was particularly worrisome given that two other banks Dubai Bank and Imperial Bank had been closed due to similar irregularities. Indicating perhaps that the information disclosed being disclosed by entities in Kenya was not adequate or accurate. As the Kenyan government makes concerted efforts to implement its economic blue print dubbed Vision 2030, one of the key issues that needs to be addressed is building investor confidence in the economy. According to Mugwe (2012), the ranking of Kenya in the global competitive report is poorer than it should be due to the unethical behaviour of firms, strength of investor protection, integrity of auditing and reporting standards, and the protection of minority shareholders. Due to the numerous corporate scandals, the demand for corporate transparency in Kenya has arisen, particularly for firms listed at the Nairobi Security

Corporate governance and firm value: a study on European financial institutions

“…Ahmed and Hamdan, 2015;Rubino et al, 2016;Yanti and Patrisia, 2019;Mishra and Kapil, 2018;Rossi et al, 2021) have demonstrated a positive relationship between the board size and the firm value. In the same vein, Weterings and Swagerman (2012), Kiharo and Kariuki (2018), Gerged andAgwili (2020), andNoja et al (2021) indicated that board size is positively and significantly associated with the firm value in the financial sector.…”

“…Consequently, the agency problem may occur due to the lack of convergence between majority and minority shareholders' interests (Vintila and Gherghina, 2014). Furthermore, Kiharo and Kariuki (2018) have demonstrated the negative relationship between ownership concentration and firm value of listed commercial banks in Kenya. Thus, based on what preceded, the following hypothesis is constructed: H4.…”

“…According to Salem et al (2019), board members commonly exercising outside hyperlinks, and are engaged in networks that could undoubtedly affect the enterprise improvement process in conjunction with its long-time period potentialities. Thus, the integration of corporate governance structure will ultimately result in the use of resources to attain their maximum output, hence the appreciation of the firm value (Kiharo and kariuki, 2018).…”

“…An independent board has a majority of outside directors who are not affiliated with the top executives of the firm and have insignificant or no business dealings with the organization to dodge potential conflicts of interest (Kiharo and Kariuki, 2018). The presence of independent directors on the board is considered a fundamental corporate governance mechanism.…”

“…Conversely, the resource dependency theory and agency theory have supported the proposition that larger board size makes firms more effective and gives them a greater value. Based on the resource dependency theory, large boards are associated with diversity in experience, skills, ideas and present an opportunity for relationships and access to resources which then improves the firm performance (Kiharo and Kariuki, 2018; Waheed and Malik, 2019). Furthermore, the agency theory stated that a large board has more control over top management and directors can prudently monitor the management performance and duties, which will eventually increase the firm value (Abdullah et al ., 2012).…”