Relationship Between Corporate Transparency And Financial Distress Of Non-financial Listed Companies In Nairobi Securities Exchange

Abstract

High-quality financial transparency provides a key basis for making well-versed corporate decisions between various stakeholders, especially those about various organizational transactions, financial planning and monitoring, and capital allocation. As a result, financial transparency is now taking a significant new meaning by incorporating more proactive and comprehensive transparency instead of its traditional approach that entailed significant transparency of an entity’s corporate governance policies only However, many listed firms in Kenya, particularly non-financial ones, have faced a significant financial crisis as they struggle to attract investors due to a lack of information transparency. Even though financial firms listed at NSE have been posting excellent financial performance over the last decade, most have been experiencing significant financial distress. Therefore, the main objective of this study was to examine the relationship between financial transparency and the financial distress of non financial companies in NSE. The study was guided by three key theories, i.e., Agency Theory, Stewardship Theory, and Stakeholders Theory. The study employed a descriptive research design. The target population of this study consisted of all 41 non-financial firms that have been operating at NSE for the past seven years. The census approach was employed to select all 41 non-financial firms in NSE. Document transparency check index based on each specific study variable was used to obtain data for the study. The data obtained was studied to establish its completeness before it was analyzed. Complete data were analyzed using STATA software. Random effects panel model was adopted to establish the extent to which the dependent variable influenced the independent variables. Results obtained in the S-Model indicated that financial transparency had a positive and non-statistically significant effect on the financial distress of non-financial companies in NSE. Results per the X-Model suggested that financial transparency had a positive and statistically significant effect on the financial distress of non financial companies in N NSE. Results obtained in the S-Model indicated that risk transparency had a positive and non-statistically significant effect on the financial distress of non-financial companies in NSE. As per the X-Model, the results suggested that risk transparency had an inverse and statistically significant effect on the financial distress of non-financial companies in NSE. The study concluded that increasing financial transparency would positively affect the financial distress of non-financial companies in NSE. The study also concluded a negative co movement between social transparency and financial distress of non-financial companies in NSE. The study, therefore, recommended that non-financial firms in NSE should strive to enhance their overall financial information transparency in their published reports to attract more potential investors, especially when such information can clearly show that the firm is financially stable. The study also recommended that the management of non-financial firms at NSE should ensure that all firm information deemed crucial for transparency to attract potential investors are properly and accurately disclosed through open publication online to give prospective investors the free will to download and go through such information.