EFFECT OF BOARD DIVERSITY ON FINANCIAL REPORTING QUALITY

EVIDENCE FROM FIRMS LISTED IN NAIROBI SECURITIES EXCHANGE, KENYA

Abstract

Financial reporting is an important determinant of investment efficiency. The wave of recent scandals and loss of billions of shillings of investments in state corporations in Kenya as led to disclosure quality being questioned. The objectives of this study were to establish effect of board of director’s age diversity and effect of board of director’s gender diversity on financial reporting quality. The study was informed by The Upper Echelon theory. This study used longitudinal research design. The target population comprised 66 firms listed in NSE. Ultimately, 280 firm-year data of 40 firms listed in NSE between 2011 and 2017 were analyzed. The data collection instrument used in this study was data collection sheet. Panel data was analyzed using random effects model as the Hausman test found it consistent. The findings revealed that Age diversity (β₁=-1.88, p=0.00), Gender diversity (β₂=-1.56, p=0.00) had a negative and significant effect on financial reporting quality. Therefore, this study recommends that the Board of Directors of firms should be made up of both genders but not in equal proportion. Secondly, the ages of the board members should include both the young and the old and again not in equal proportion.