The effect of social and environmental accounting and reporting on the financial performance of companies listed on the Nairobi securities exchange
Odhiambo, Alphonse O
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Profit and shareholders wealth maximization have for long dictated accounting and reporting practices, increasing demand for transparency and growing expectations that corporations measure, report, and continuously improve their social, environmental, and economic performance have given rise to the need for environmental and social accounting and reporting. The research aimed at determining the areas of social and environmental activities reported and the format used to report in the annual financial reports of the companies listed in the Nairobi Securities Exchange. It also aimed at determining if the companies were following the various frameworks that were available for reporting on the impact of their economic activities on the society and environment like the Global Reporting Initiative (GRI) reporting guidelines. The research also aimed at determining whether by accounting and reporting on their social and environmental activities this had an effect on the firm’s financial performance as measured by the Return on Assets.The population of the study comprised of sixty four companies quoted in NSE as at December 2014. Census method was used to collect data. Secondary data was collected from published annual financial statement of all listed companies. Content analysis and regression analysis were used in analyzing data. It was established in the year 2011, companies practicing social and environmental accounting and reporting were 60%, while in 2012 they were 63% and while in 2013 they were 68%. It was also established that most companies reported their social and environmental activities using a monetary form of presentation even though they did not follow any reporting guideline. Lastly, it was observed that there exists a relationship between social and environmental accounting and reporting and financial performance of companies listed in the NSE. Regression analysis was used to test the relationship between social and environmental accounting and reporting and financial performance while using capital intensity and efficiency as control independent variables. The study found that CSR score, efficiency and capital intensity had a positive relationship with financial performance of companies listed in the NSE. The study found an increase in CSR score would lead to increase in financial performance and also revealed that a unit increase in efficiency would lead to increase in financial performance. The research also determined that a unit increase in capital intensity would lead to increase in financial performance of the companies listed in the NSE.
University of Nairobi