Effect Of Voluntary Accounting Disclosures On Financial Performance Of Insurance Companies In Kenya

Abstract

Non-disclosure of vital reports has made stakeholders to lack confidence in investing with such companies leading to a decline in performance. As a result, various organizations, including insurance companies have in the recent past adopted voluntary accounting disclosures as part of their financial management. Nonetheless, despite the use of voluntary accounting disclosures, the performance of Kenyan insurance companies still remains low. The general study objective will be to examine effect of voluntary accounting disclosures on financial performance of Kenyan insurance companies. Moreover, the study also sought to establish the influence of financial information disclosure, forward looking information disclosure and environmental accounting on financial performance of Kenyan insurance companies. Further, the on-going study sought to evaluate moderating effect of corporate governance on the association between voluntary accounting disclosure and financial performance of Kenyan insurance companies. Additionally, explanatory research design was employed during the study. The target population was the 55 Kenyan insurance companies. The present study deployed census approach and hence all the 55 insurance companies were included in the study. The study made use of secondary data, which was obtained from the annual reports of insurance companies in Kenya and from Central Bank of Kenya‘s bank supervision reports. The study made use of a data extraction tool to collect secondary data. In the analysis of data, the study used both inferential and descriptive statistics and all statistical analysis was carried out using STATA version 14. Descriptive statistics comprised of frequency distributions, percentages, mean, variances and standard deviation. On the other hand, inferential statistics were carried out using regression analysis, which was either fixed effect or random effects depending on the results from Hausman test. The study found that financial information disclosure has positive and significant effect on financial performance of insurance companies in Kenya. In addition, forward looking information disclosure has an inverse and significant effect on financial performance of insurance companies in Kenya. Further, the study found that environmental accounting information disclosure has positive and significant impact on financial performance of insurance companies in Kenya. Also, the study established that corporate governance has statistically significant effect on the relationship between voluntary accounting disclosures and financial performance of insurance companies in Kenya. The study recommends that insurance companies should improve the disclosure of information such as return on assets, return on shareholders‘ funds, liquidity ratios, bank loans and mortgages and historical summary of financial data among others. In addition, the management of insurance companies should increase the use of forward looking information disclosure including profit forecast, earnings per share forecast, new product/service development as well as planned research and development expenditure, capital expenditure and advertising and publicity expenditure. Further, the management of insurance companies should improve the use of environmental accounting including environment policy, environment management system, environmental compliance, environmental cost identification, waste management and environmental budget among others.