THE INFLUENCE OF FINANCIAL LIABILITY REPORTING ON MARKET RETURNS OF MANUFACTURING COMPANIES 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 approach, the research analyzed secondary data from eight firms using descriptive, correlational, and causal statistical techniques. The findings indicate notable financial obligations in trade payables, dividend payables, bank overdrafts, and noncurrent liabilities, underscoring issues of liquidity and financial leverage. Trade payables were found to aid cash flow management, whereas reductions in dividend payables negatively influenced retained earnings and overall firm performance. Regression results revealed a weak but statistically significant positive association between liability disclosures and market returns, with disclosures accounting for only 1.7% of the variation in returns. Specifically, a unit increase in liability disclosures corresponded to a modest rise in market returns, leading to the rejection of the null hypothesis of no effect. The study concludes that while liability disclosures influence market returns, their impact is relatively limited compared to other financial indicators. It recommends that firms sustain liabilities at levels lower than assets to reduce insolvency risks and calls on policymakers to encourage comprehensive disclosure practices to enhance transparency and investor confidence. Future research should explore the differential effects of various liability types and contextual factors on market outcomes.