Effect Of Balance Sheet Reporting On Financial Performance Of Firms Listed At Nairobi Securities Exchange

Abstract

Background: Financial reporting dimensions play a crucial role in providing users and regulatory agencies with insights into a company’s financial health. Adhering to established accounting standards, financial reports become relevant, reliable, and comparable, promoting informed decision-making. Transparent reporting fosters trust and credibility with stakeholders while supporting responsible decision-making. However, there has been a declining trend in the return on assets (ROA) among listed firms from 2019 to 2024, with some firms ceasing operations. Despite the importance of accurate financial reporting for investor confidence and financial performance, there is limited understanding of how these dimensions affect firm financial performance in Kenya. This work was anchored on the theory of Accounting Conservatism. Material and Methods: Positivism research philosophy was adopted alongside cross-sectional research design. A target population of 57 firms was used as per NSE handbook of 2023. Stratified sampling technique was used to derive a sample of 50 listed firms. A Structured data collection sheet was employed to extract secondary data from the firm’s financial statements for the period of 2018 to 2023. Data was analyzed by use of descriptive statistics methods of means, standard deviations, and percentages, while inferential statistics included correlation and panel regression analysis. Results: Correlation analysis showed a strong positive relationship between balance sheet reporting and financial performance at a 95% confidence level. Hausman test conducted directed that random effect regression was the most preferred model over fixed effect regression. The results showed a strong positive correlation between balance sheet reporting and financial performance with (r=.5044). Further GLS random effect regression model indicated that balance sheet reporting had a statistically significant effect on financial performance of listed firms with an influence of 51.14% and p<.05 significance level. Conclusion: Balance sheet reporting enhances transparency and accountability of financial information thus improved investor confidence. This ensures long term sustainability of firms and accelerated wealth accumulation. 1 unit change in balance sheet reporting causes .5114131 units change in financial performance of firms listed at Nairobi Securities Exchange