THE IMPACT OF FINANCIAL LIABILITY REPORTING ON MARKET PERFORMANCE OF MANUFACTURING FIRMS QUOTED ON THE NAIROBI SECURITIES EXCHANGE IN KENYA

Abstract

This study investigates the impact of financial liability disclosures on the market returns of manufacturing firms listed on the Nairobi Securities Exchange (NSE) between 2012 and 2022. Guided by a positivist research philosophy and employing a mixed-methods design, secondary data from eight firms were examined using descriptive, correlational, and causal statistical analyses. The results revealed substantial obligations in trade payables, dividend payables, bank overdrafts, and noncurrent liabilities, underscoring persistent liquidity pressures and reliance on financial leverage. Trade payables were found to facilitate cash flow management, whereas reductions in dividend payables negatively influenced retained earnings and firm performance. Regression analysis indicated a weak but statistically significant positive association between liability disclosures and market returns, with disclosures accounting for only 1.7% of the variation. A unit increase in liability disclosures was linked to a marginal rise in market returns, prompting the rejection of the null hypothesis of no effect. The findings suggest that while liability disclosures influence market returns, their effect is relatively limited compared to other financial indicators. The study recommends that firms keep liabilities lower than assets to reduce insolvency risks and that policymakers promote comprehensive liability reporting to enhance transparency and investor trust. Future studies should explore the role of specific liability categories and contextual dynamics in shaping market outcomes.