Determinants of Readability of Financial Statements in Kenya

Abstract

The current study set out to investigate the determinants of readability of financial statements of Kenyan listed firms. A deductive approach was employed and data collected from a sample of 59 companies listed in the NSE in a census study over a 5 year period between years 2014 to 2018. Prais Winsten regression model was employed and the findings indicated that file size had a significant and negative effect on the readability of financial statements in Kenyan listed firms. The implication is that large size financial statements are more difficult to read than the smaller ones. This finding is consistent with reality since it will take less time to read small sized financial statements than larger ones. Preparers of financial statements who are the firm managers should thus to be careful about this finding. Regulatory authorities should develop policies that encourage production of smaller volume financial statements to enhance their readability by the end users. The current study is the first in East Africa since there has been no study on readability of financial statements that has employed readability indices and that has regressed determinants against readability of financial statements in this region.