Determining the Relationship between Forward-looking Information Disclosure and Financial Performance of Non-financial Firms Listed in Nairobi Securities Exchange, Kenya

Forward-looking information disclosure (FLID) plays an important role for every business because it helps to make predictions that publicly-traded companies make about their future business conditions. Conflict over whether forward-looking information disclosures would be beneficial to users of financial statements is complicated because inadequate empirical evidence exists to support the position that forecasted management information would truly be beneficial to users in their decision-making. This study envisaged to determine the relationship between forward-looking information disclosure and the financial performance of non-financial firms listed in the Nairobi Securities Exchange (NSE). The performance indicator was market-based measurement (Tobin’s Q ratio). The study employed a descriptive cross-sectional research design. A total number of 45 questionnaires were administered to the CEO of 45 listed non-financial companies in NSE, Kenya. The study used secondary panel data contained in the annual reports of non-financial firms listed in NSE, Kenya. The data was extracted from the NSE handbook for the period 2011-2015 and from companies’ websites. This was complemented by semi-structured questionnaires which were given to 45 Chief Executive Officers. Data analysis was done by both descriptive (measures of central tendency and dispersion) and inferential statistics (multiple regression analysis and correlation analysis) with the help of Statistical Packages of Social Sciences (SPSS version 22). The results revealed that there was a significant positive linear relationship between forward-looking information disclosure and firm financial performance measured by Tobin’s Q of listed non-financial firms in Kenya. Since the coefficient of Forward-looking Disclosure*Corporate Governance was significant it further implied that the corporate governance attribute (Board composition) significantly moderated the relationship between financial performance (measured by Tobin’s Q) and Forward-looking Disclosures. Based on these findings the study concluded that listed non-financial firms should voluntarily disclose their forward-looking information to all their stakeholders.