Corporate governance and corporate internet reporting in sub-Saharan Africa:the case of Kenya and Tanzania

• Pages: 751-773
• DOI: https://doi.org/10.1108/CG-12-2018-0365
• Date: 22 May 2019
• Published date: 22 May 2019
• Author: Nelson Waweru,Musa Mangena,George Riro

Corporate governance and corporate

internet reporting in sub-Saharan Africa:

the case of Kenya and Tanzania

Nelson Waweru, Musa Mangena and George Riro

Abstract

Purpose –This paper aims to investigate corporate internet reporting (CIR) by Kenyan andTanzanian

listedcompanies and whether the level of CIR is relatedto corporate governance structures.

Design/methodology/approach –The authors collect data over a four-year period from companies

listed on the Nairobi Securities Exchange and the Dar es Salaam Securities Exchange. Panel data

models(random effects) are used for the analysis.

Findings –The results indicate that thelevel of CIR in both countries is high, but the highest in Kenya.

The authors findthat CIR increases with foreign ownership,audit committee independence and financial

expertise but decreases with domestic ownership concentration. They also show that the effects of

ownershipconcentration are moderated by country-specificfactors. Overall, the results demonstratethat

effectivegovernance structures may leadto higher levels CIR in sub-Saharan Africans.

Originality/value –This study extends, as wellas contributes to the existing literature by the examining

the corporate governance-disclosure nexus relatingto CIR in sub-Saharan Africa. These findings have

policy implicationsfor African countries lookingto attract foreign investment.

Keywords Kenya, Corporate governance, Tanzania, Ownership concentration, Board structures,

Corporate internet reporting

Paper type Research paper

1. Introduction

In this paper, we investigate the role of corporate governance structures on corporate

internet reporting (CIR) practices of listed companies in Africa. In particular, we analyse the

level of CIR by companies listedon the Nairobi Stock Exchange (NSE) in Kenya and the Dar

es Salaam Stock Exchange (DSE) in Tanzania. In general, the quality of external reporting

by companies in a country enhances investors’ understanding of the risks associated with

the companies’ future cash flows (Young and Guenther, 2003;Barth and Landsman, 2010).

According to Karamanou and Vafeas (2005) and Ajinkya et al. (2005), such reporting is

facilitated by the existence of goodfirm-level governance structures. In line with this, African

countries, including Kenya and Tanzania, have paid attention on improving corporate

governance and enhancing external reporting to attract foreign investors on their stock

markets (Mangena and Chamisa,2008)[1].

These initiatives by African countries are considerably important because of the traditional

investor perception that the continent is a high-risk due to lack of transparency,weaknesses

in corporate governance and investor protection laws (Klapper and Love, 2004;

Okeahalam, 2004;Mangena and Tauringana, 2007). Consequently, the World Bank (2010)

has promoted the need to improve governance and quality reporting in Africa to help allay

investors’ fears and attractingforeign capital. This view is supported by prior research using

Nelson Waweru is based at

the School of Administrative

Studies, York University,

York, UK.

Musa Mangena is based at

the University of Essex,

Colchester, Essex, UK.

George Riro is based at the

Dedan Kimathi University of

Technology, Nyeri, Central,

Kenya.

Received 1 December 2018

Revised 3 February 2019

24 March 2019

Accepted 28 March 2019

DOI 10.1108/CG-12-2018-0365 VOL. 19 NO. 4 2019, pp. 751-773, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 751

African data that show that foreign investor participation on stock exchanges is associated

with better governance and disclosure (Mangena and Tauringana, 2007;Bokpin and

Isshaq, 2009).

An important means by which companies in Africa (and elsewhere) can improve

transparency and attract investments is to use the internet for reporting, commonly

referred to in the literature as CIR (Xiao et al., 2004;Kelton and Yang, 2008). In the

developed world, the use of CIR has grown significantly (Ettredge et al., 2002;Kelton

and Yang, 2008;Garcia Sanchez et al., 2011) and according to Xiao et al. (2004) is now

the preferred medium for external corporate reporting. For Africa, with its drive to

attract foreign investments to the capital markets, high levels of CIR may lead to a much

easier access to information by investors (Ashbaugh et al., 1999;Oyelere et al.,

2003)[2]. This will reduce the efforts and resources required by investors to gather

information (Bollen et al., 2006), thus attracting more foreign investors into African stock

exchanges. This is critical because information gathering costs are considered a

critical impediment to foreign investors’ trading on foreign stock exchanges (Young and

Guenther, 2003;Ahearne et al., 2004). Thus, our study seeks to understand the level of

CIR in Africa and whether such CIR is associated with corporate governance

structures.

Since the 1990s, prior work has examined CIR practices, mainly in the developedcountries

(Ashbaugh et al.,1999;Craven and Marston, 1999;Marston and Polei, 2004;Paisey and

Paisey, 2006;Abdelsalam and Street, 2007;Kelton and Yang, 2008;Garcia Sanchez et al.,

2011). More recently, some studies have begun to appear in developing countries,

including Africa (Xiao et al., 2004;El-Masry and Ezat, 2008;Aly et al.,2010;AbuGhazaleh

et al., 2012;Bin-Ghanem and Ariff, 2016;Ahmed et al., 2017). Taken together, the work on

developing countries, in particular Africa, have focussed more attention on examining the

impact of company specific factors (e.g. company size, leverage, profitability) on the level

of CIR, but not corporate governance structures. Our paper extends this prior work in a

number of ways.

First, we examine CIR practices in an African setting, where there are limited studies on

corporate reporting in general (Barako,2006, 2007) and on CIR in particular (Aly et al.,

2010;Ahmed et al.,2017). The limited studies are surprising given the drive by African

countries to enhance corporate reporting practices, for example, the adoption of IAS by

countries such as Kenya, South Africa, Tanzania and Zimbabwe are aimed at enhancing

the quality of reporting. With specific reference to CIR, Kenya and Tanzania, in particular,

encourage listed companies to use their websites to communicate information to a range of

users [see CMA, 2002; CMSA, 2002]. Yet, thereis to-date no study examining CIR practices

in these countries.

Second, we contribute to the existing work on governance structures and CIR practices,

which is limited. While there is a plethora of studies examining corporate governance and

disclosure, the existing work on CIR has tended to focus on timeliness of CIR (Abdelsalam

and Street, 2007;El-Masry and Abdelsalam, 2008;El-Masry and Ezat, 2008) or CIR in a

developed country context (Kelton and Yang, 2008;Garcia Sanchez et al., 2011). Thus, our

focus on:

䊏the level of CIR disclosure (rather than CIR timeliness); and

䊏in African countries, offers an additional dimension to the governance and CIR

literature.

While there have been initiatives to improve the quality of corporate governance by African

countries, we know very little about the efficacy of governance structures on decisions such

as CIR[3]. Thus, our study is relevant to regulatory bodies in Africa, as they attempt to

enhance corporate governanceand reporting.

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