EFFECT OF VOLUNTARY DISCLOSURE ON THE FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN RWANDA. A STUDY ON SELECTED BANKS IN RWANDA
Journal Title: European Journal of Business and Social Sciences - Year 2016, Vol 5, Issue 6
Abstract
Voluntary disclosure represents one of the pillars of corporate governance. Numerous scandals have occurred worldwide due to lack or improper corporate disclosures. It has been argued that managers should voluntarily disclose information that would satisfy the needs of various stakeholders. Voluntary disclosure is aimed at providing a clear view to stakeholders about the business’s long-term sustainability and reducing information asymmetry and agency conflicts between managers and investors. The main objective of this study was to investigate the effect of voluntary disclosure on the financial performance of commercial banks in Rwanda. To achieve this the study examined general and strategic disclosure, financial disclosure, forward looking disclosure, social board disclosure as a proxy for measuring voluntary disclosure and firm characteristics and how they affect the financial performance of commercial banks in Rwanda. Firm performance was measured using Return on Equity (ROE). This study adopted a descriptive research design. The study took a sample of 14 commercial banks in Rwanda. Census approach was used to determine the sample size. Data was collected through developing a disclosure index consisting of 47 disclosure items. Secondary data was collected using documentary information from Banks annual accounts for the period 2011 to 2015. Data was analyzed using a multiple linear regression model. Results revealed that a strong relationship exist between the voluntary disclosure, firm size and financial performance. The study found a positive relationship between financial, forward looking and board and social disclosure and return on equity. A 1% increase in financial disclosure leads to a 54% increase in financial performance of commercial banks, while a 1% increase in forward looking disclosure leads to a 33.9% increase in return on equity and a 1% increase in board and social disclosure leads to a 50.3% increase in return on equity. On the other hand, the study found a negative relationship between general & strategic disclosure and return on equity. This means that a 1% increase in strategic disclosure leads to a 20.2% decrease in return on equity of a firm. The study concluded that firms should lean towards disclosure of financial and social board disclosure to increase their performance. This relationship is expected as firms disclose more its information asymmetry reduces which reduces cost of capital. The study recommends more study on the role played by voluntary disclosure on other sectors like agriculture to enrich the study in Rwanda.
Authors and Affiliations
Isaac Nyachio Achoki| Jomo Kenyatta University of Agriculture and Technology, Kigali, Rwanda, Julius Warren Kule (PhD)| Jomo Kenyatta University of Agriculture and Technology, Kigali, Rwanda, Dr. Jaya Shukla| Jomo Kenyatta University of Agriculture and Technology, Kigali, Rwanda
Keywords
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