The Quality of Financial Information Disclosures and its Contribution to Financial Stability of Commercial Banks in Kenya

Abstract

The purpose of this study was to explore the impact of the quality of financial information disclosures on the financial stability of commercial banks in Kenya. This study employed an unevenly balanced panel dataset, including 43 commercial banks in Kenya over the period from 2000 to 2021, which resulted in 789 observations based on bank years. The approach focused on disclosures related to stability, specifically analyzing risk, liquidity, and profitability. The study employed self-created measures for disclosures, assigning scores from 1 to 5 on an ordinal scale for each disclosed item. The awarding of scores was based on the assessment of usefulness of information provided by the financial information disclosed. The study findings established that risk related disclosures and liquidity related disclosures are positively related with financial stability while profitability related disclosures are negatively related with financial stability. The study findings underscore that high quality of financial information disclosures relating to risk and liquidity provide information to the management of commercial banks who finds value on the evaluation of financial stability for their banks. Research results provide important implications for regulators, bank managers and policy makers on the importance of financial information disclosures especially those relating to credit risk as per the requirement of IFRS 7 and IFRS 9.