The Effect of Socially Responsible Investment on Financial Performance of Non-financial Firms Listed at Nairobi Securities Exchange

Abstract

The study intended to establish the effect of socially responsible investment on financial performance of non-financial firms listed at the Nairobi securities exchange, Kenya. The study used a descriptive cross sectional survey approach. The targeted population comprised of non-financial firms listed in Kenya. They were thirty-nine (39) in number as at 31st December 2019. The study employed primary and secondary data.The collection of primary data was done using a structured questionnaire. Multiple regression analysis was then employed to determine how socially responsible investment affects financial performance. It was found out that the non-financial firms adopted SRI practices in their investment decision making. Correlation analysis established that negative screening, norm based screening, positive screening and return on assets have strong positive and significant correlation. (r = .647, .689, and .771) respectively with p< 0.05 in all the correlations. Size of the firm and return on assets having a moderately positive and significant correlation given by r = .560 (p< 0.05). The implication is that improved consideration of negative screening, norm based screening, positive screening lead to improved return on assets. Increased firm size equally leads to increased return on assets. Regression analysis established that R = 0.792 implying that SRI and financial performance of listed non-financial firms are positively related. The adjusted R2 of 0.577 meant that 57.7% of variations in financial performance was caused by variations in norm based screening, negative screening, positive screening and size of the firm. This implied that there were other factors representing 42.3% that affect financial performance of the listed non-financial firms other than those included in the model under this study. The overall p-value with F statistic of 12.587 indicated an existent of a significant relationship between SRI and financial performance with p=0.000 (p<0.05). The implication was that norm based screening, negative screening, positive screening and size of the firmreliably predicted financial performance of listed non-financial firms at the NSE. The conclusion of the study was that negative screening, norm based screening, positive screening positively and significantly correlates with return on assets. It was also concluded that size of the firm positively affected return on assets positively and that there was a positive relationship between SRI and financial performance of listed non-financial firms listed at NSE, Kenya. The recommendation of the study was that managers of both the listed and the non-listed companies should modify their corporate strategies accordingly owing to the fact that, the findings indicate that SRI affect financial performance of firms. The recommendation is that the managers be up to date on issues regarding SRI and the related concepts.