Impact of Corporate Sustainability Reporting on Stock Returns of Firms Listed at the Nairobi Securities Exchange

Abstract

Corporate sustainability reporting has gained prominence in the last decade as firms struggle to thrive in the current interdependent world. This is informed by the argument that for companies to succeed, they need to identify various stakeholders to whom they will account to, establish relationships with, and identify ways in which they will work together for mutual gains. In the long term, the company will be more profitable and be more socially, economically and environmentally prosperous for the society. The study’s aim was establishing how corporate sustainability reporting impacts stock returns of NSE listed firms. The study’s population was the 63 NSE listed companies. The independent variables for the study were corporate sustainability reporting measured using a sustainability reporting index developed from Global Reporting Initiative (GRI), leverage represented by debt ratio, management efficiency given by total revenue to total assets and firm size as represented by the natural log of total assets. Stock return was the dependent variable given by annual change in stock price plus dividend issued if any. Secondary data was acquired for five years (January 2015 to December 2019) annually. The design for this study was descriptive cross-sectional design while multiple linear regression was applied in determining the variables’ relation. SPPS software was employed in the analysis of data. From the analysis an R-square value of 0.393 was produced which in other words mean that 39.3% of the changes in the stock returns of NSE listed firms can be described by the independent variables studied while the other 60.7% in the changes in stock returns is affiliated to other variables that outside the scope of this study. It was further found out that independent variables of this study strongly correlated with the stock returns (R=0.627). ANOVA outcomes revealed a substantial F statistic at 5% level with a p<0.005. Henceforth, the model was appropriate in explanation of how the variables relate. The findings also showed that corporate sustainability reporting and firm size generated positive and statistically significant values while leverage generated negative substantial values for this study. Management efficiency generated positive but weak values for this study. It hence recommends that listed firms should enhance their corporate sustainability reporting and their asset levels as this has a significant positive impact on stock returns of the firms. The study also recommends the need for future studies to focus on factors that influence adoption of sustainability reporting as a practice.