Human Capital Disclosure and Firm Value; Does Audit Committee Size Matters. Evidence from Listed Firms in Nairobi Securities Exchange, Kenya

Abstract

This study investigates how human capital disclosure and audit committee size affect the value of firms listed on Kenya's NSE, addressing gaps in human capital disclosure in emerging markets and guided by human capital theory and agency theory. The study adopted longitudinal research design, targeting 62 firms listed on the Nairobi Securities Exchange (NSE) between 2017 and 2021. A census approach was employed, with 53 firms meeting the inclusion criteria, resulting in a 91.4% response rate and 265 observations from 290 panel data points. Secondary data was gathered using a data extraction tool, and analysis involved both descriptive and inferential statistics. Correlation analysis explored variable relationships, while fixed-random regression analysis tested hypotheses using panel data. Based on Hausman test, random effect model was selected which showed that human capital disclosure (β = 1.405, p-value = 0.000 < 0.01), had a significant positive effect on firm value. The hierarchical random-effects regression analysis revealed that audit committee size significantly moderates the relationships between human capital disclosure and firm value (β = 1.79, p < 0.01, R²∆ = 0.001). The study concludes that human capital disclosure is a pivotal factor in enhancing the firm value of listed companies. Furthermore, the findings suggest that firms with larger audit committees are better equipped to effectively utilize their human capital disclosures to bolster firm value. As a result, the study recommends that organizations prioritize strengthening the size and capacity of their audit committees. This enhancement can promote more transparent and effective human capital disclosures, ultimately contributing to improved firm value and overall organizational performance.