The Effect of Environmental, Social and Governance Reporting on Stock Returns of Firms Listed at the Nairobi Securities Exchange
Abstract
In the aftermath of global financial scandals and increased stakeholder pressure,
companies are now more sensitive towards ESG reporting. ESG entails voluntarily
reporting a firm's ethical values, long-term sustainability performance, and reputation.
Presently, the board not only monitors and controls managers' behaviors but also
ensures that the company meets societal and environmental needs, which is best
captured by ESG reporting. Recent studies reveal that ESG reporting reduces
information asymmetry between the principal and the agent; thus, mitigating
opportunistic managerial behaviors’ and this is expected to enhance the stock returns
of firms. The main research objective was to establish ESG reporting effect on stock
returns of listed firms at the Nairobi Securities Exchange. The independent variable
for the research was ESG reporting measured using environmental reporting, social
reporting and environmental reporting while the control variable was trading volumes.
The dependent variable was stock returns measured using annual change in share
price. The research was anchored on stakeholder theory, the agency theory and
behavioral finance theory. Descriptive research design was utilized in this research.
The 63 listed firms in Kenya as at December 2021 served as target population. The
research obtained secondary data for five years (2017-2021) on an annual basis from
CMA and individual listed firms’ annual reports. Descriptive, correlation as well as
regression analysis were undertaken and outcomes offered in tables followed by
pertinent interpretation and discussion. The research discovered a 0.2528 R square
value implying that 25.28% of changes in listed firms’ stock returns can be described
by the four variables chosen for this research. The multivariate regression analysis
further revealed that individually, environmental reporting exhibited a positive and
significant influence on stock returns of Kenyan listed firms (β=0.1222, p=0.000).
Social reporting and governance reporting exhibited positive but not significant effect
on stock returns of listed firms as shown by (β=0.0392, p=0.594); and (β=-0.0618,
p=0.392) respectively. Trading volumes exhibited a positive and significant influence
on stock returns of Kenyan listed firms (β=0.2314, p=0.000). The research
recommends the need for listed firms to enhance environmental reporting as this will
enhance their returns. The policy makers such as CMA can hasten the implementation
of GRI-G4 guideline. Future research ought to focus on other listed firms in East
Africa community member countries to corroborate or refute the conclusions of this
research.
Publisher
University of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
- School of Business [1411]
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