Corporate Sustainability Reporting, Intangible Resources, Firm Characteristics, and Financial Performance of Companies Listed at the Nairobi Securities Exchange

Abstract

Reporting on corporate sustainability has become a topical issue in the international business arena, with companies in developed and developing nations proactively publishing sustainability reports to satisfy the demands of different stakeholder groups on social, environmental, economic, and governance concerns. The underlying literature has shown that companies that actively engage in corporate sustainability reporting exhibit greater value, and have experienced increased growth in size and profitability resulting to increased assets. The firms have also slowly enhanced their competitive advantage among firms. Theorists have argued that corporate sustainability reporting has resulted in increased financial performance by generating unique intangible resources such as good reputation, innovations, human capital, and organizational culture. Other theorists opined that firm characteristics influenced corporate sustainability reporting and practices among firms. The theorists argued that the firms that aggressively carried out corporate sustainability reporting were large, older, highly liquid, and experienced low leverage. The study intended to examine the nexus between corporate sustainability reporting and the financial performance of listed firms at the Nairobi Securities Exchange. The study also sought to establish the mediating effect of intangible resources on the relationship between corporate sustainability reporting and financial performance. The research further sought to examine the influence of firm characteristics on the relationship between corporate sustainability reporting and financial performance. Lastly, the study aimed to analyze the combined effect of corporate sustainability reporting, intangible assets, and firm characteristics on the financial performance of companies listed at the Nairobi Securities Exchange from 2011 to 2020. The study is anchored on the Stakeholder theory, which argues that for an organization to create value, it must address the social, environmental, economic, and governance concerns its many stakeholders raise. The study adopted a cross-sectional correlational research design premised on the positivist philosophy as it heavily relied on secondary panel data of the variables. The study utilized the Global Reporting Initiative framework to establish the corporate sustainability reporting scores. EViews and SPSS were used to analyze the data and infer the interpretations from the results. The study tested four hypotheses and four sub-hypotheses. With a time lag of one year, the study established a positive effect of corporate sustainability reporting on the financial performance of the NSE-listed companies. Specifically, corporate governance reporting had a statistically positive significant effect on asset returns. The study also found that the intangible resources had a partial mediating effect on the relationship. The study results also reveal that the firm size, age, and liquidity moderated the relationship between corporate sustainability reporting and financial performance. The study strengthens the argument of the stakeholder, legitimacy, triple bottom line theories, and the underlying empirical studies. The study recommends that all firms listed at Nairobi Securities should invest in corporate sustainability reporting to boost their financial performance. The study advises the Capital Markets Authority and Nairobi Securities to develop a common corporate sustainability reporting framework and make it compulsory for all companies to issue annual sustainability reports in addition to financial reports. As a guide to future research, the study recommends the utilization of other frameworks to establish the sustainability scores. As regards the moderating variable, the study recommends testing the influence of different variables, such as industry and managerial characteristics, on the relationship between corporate sustainability reporting and financial performance.