Effect of Sustainability Reporting on the Value of Companies Listed at the Nairobi Securities Exchange

Abstract

Sustainability reporting has grown in importance over the past decade as companies struggle to succeed in today's interdependent world. This is supported by the argument that to be successful, companies must identify the diverse stakeholders they are responsible for, build relationships with them, and find ways to work together for mutual benefit. In the long run, the company will be more profitable and socially, economically, and environmentally socially successful. The objective of the study was to determine the effect of sustainability reporting on the value of companies listed at NSE. The population of the study was 62 companies listed at NSE. The research focuses on the impact of sustainability reporting, which is measured through the Sustainability Reporting Assessment Matrix developed by the ASEAN CSR Network and Center for Governance Institutions and Organizations. The study also considers leverage, which is measured by debt ratio, and management efficiency, which is measured by total sales, total assets, and firm size. The natural logarithm of total assets is used to express management efficiency. The dependent variable is enterprise value, which is calculated by dividing the price per share by the total book value to determine the number of outstanding shares (book value). The study utilizes secondary data from 2018 to 2022. The study utilized a descriptive design and employed multiple regression to examine the relationships between variables. The analysis of data was conducted using SPPS Statistic software. The findings showed an R-square value of 0.646, meaning that the independent variables under investigation can account for 64.6% of the variations in the company value of NSE listed enterprises. Other factors outside the purview of this study are responsible for the remaining 35.4% of the variations in the firm valuation. Furthermore, a substantial connection (R=0.804) was found between the independent factors in this study and the company valuation. A strong positive relationship between operating efficiency and value for publicly traded companies was discovered by the study. Additionally, the study found a significant and positive relationship between sustainability reporting and the value of these companies. The study also found that while companies primarily apply sustainability reporting scoring strategies, the least used strategy is financial management efficiency. It can be concluded that Sustainability Reporting score is the most common as it generates the highest value, while Management Efficiency Financing yields the lowest value. Overall, this study concludes that investing in sustainability reporting significantly improves a company's value. There is a need to investigate how the impact of sustainability reporting on firm value differs across different industries within the Nairobi Stock Exchange. There is a need to dig deeper into the quality of sustainability reports by conducting qualitative assessment.