SUSTAINABILITY REPORTING, CORPORATE GOVERNANCE AND FIRM VALUE OF FIRMS LISTED AT THE NAIROBI SECURITIES EXCHANGE, KENYA

Abstract

The main goal of a firm is to maximize shareholder wealth through enhancing firm value. Despite the critical role of firm value in driving corporate growth, global trends indicate that achieving firm value stability remains a persistent challenge. The relationship between sustainability reporting and firm value has been extensively debated, largely due to the qualitative nature of sustainability-related disclosures. Furthermore, the potential moderating influence of corporate governance on firm value has yet to be thoroughly examined. Against this backdrop, this study seeks to investigate the effect of sustainability reporting on firm value among firms listed at the Nairobi Securities Exchange (NSE) in Kenya. Specifically, the study focuses on three key dimensions of sustainability reporting i.e. social, economic, and environmental, while also assessing the moderating role of corporate governance. The research was guided by agency, legitimacy, value-enhancing and signaling theories and the positivism paradigm. The study target population include all 64 NSE listed companies. The study employed secondary data collected by use of the annual reports sourced from NSE and firms’ websites for eleven (11) years from 2012-2022. Content analysis technique was employed for collection of secondary data using data collection sheets. The research used longitudinal research approach and correlation research design. The findings reveal a nuanced relationship between sustainability reporting and firm value, moderated by corporate governance. Economic sustainability reporting has a significant negative effect on firm value (β = -6.711, p = 0.000), suggesting that such disclosures may signal financial challenges or misalignment with short-term performance goals, thereby eroding investor confidence. In contrast, environmental sustainability reporting has a significant positive effect (β = 4.944, p = 0.000), highlighting its role in enhancing firm value through improved reputation, risk mitigation, and stakeholder trust. Social sustainability reporting, however, has an insignificant negative effect (β = -2.012, p = 0.387), indicating that its impact on firm value may be context-dependent or overshadowed by other factors. Corporate governance significantly moderates the relationships, weakening the effect of social sustainability reporting (β = -0.664, p = 0.006) and strengthening the negative effect of economic sustainability reporting (β = 0.998, p = 0.000). However, governance does not moderate the relationship between environmental sustainability reporting and firm value (β = -0.007, p = 0.975), suggesting that environmental initiatives are valued independently of governance structures. These results underscore the importance of aligning sustainability reporting with governance mechanisms and stakeholder expectations to maximize firm value, while highlighting the distinct and context-specific roles of economic, social, and environmental sustainability reporting. Therefore, the study recommends that managers should focus on enhancing the quality and transparency of economic and environmental sustainability reporting to improve investor confidence and trust. Robust corporate governance practices should be adopted to ensure reliable social and economic disclosures, which can positively influence firm value. Furthermore, managers should be aware of the varying importance of different types of sustainability reporting to investors and stakeholders, and tailor their reporting strategies accordingly.