Sustainability Disclosures and Firm Value of Firms Listed At Nairobi Securities Exchange, Kenya
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Date
2025-11
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Kenyatta University
Abstract
Security exchanges play an important role in an economy by encouraging
savings and investments. However, for the Nairobi Securities Exchange (NSE),
this role has been undermined by the erratic movement in firm value in the
recent past. In the period from 2017 to 2023, Tobin’s Q was very erratic going
to a high of 1.3 in September 2021 and a low of 1.0 in November 2023. The
exchange launched an ESG Disclosures Guidance Manual in November 2021
in which they claimed that sustainability disclosures are positively correlated
with better financial performance. Evidence from previous studies presents
mixed results. This study aimed to examine the effect of sustainability
disclosures on firm value for firms listed at the Nairobi Securities Exchange,
Kenya. Specifically, the study looked to establish the effect of Environmental,
Social and Governance disclosures on firm value of firms listed at the exchange.
Further, the study went on to assess the moderating effect of firm size on the
relationship between the sustainability variables and firm value. The study was
anchored on the Shareholder theory, Signalling theory, Stakeholder theory,
Social Contract theory and the Agency theory. The study adopted a positivist
research philosophy and an explanatory research design. Quantitative,
secondary panel data was collected from the companies’ annual reports for the
period 2017 to 2023 by way of a document review into a Microsoft Excel
spreadsheet based data collection tool. Stata V12 software was used to analyze
the data using descriptive statistics and inferential statistics. Hypothesis testing
was carried out on a dynamic Generalized Method of Moments model. Post-test
model specification tests included Arellano-Bond serial-correlation test AR1
and AR2 and Sargan-Hansen tests for over-identifying restrictions. Ethical
considerations were taken into account by obtaining relevant research clearance
and approvals. The study found that the first and second lag of firm value with
p-values of 0.014 and 0.016 respectively had a positive and significant effect on
current firm value. It also found that the contemporaneous value of governance
disclosures had a positive and significant effect on firm value (p-value = 0.004).
Additionally, the first lag of social disclosures (p-value of 0.046) had a negative
and significant effect on firm value. Tests for moderation showed that firm size
significantly and positively affected the relationship between governance and
firm value (p-value = 0.000). Environmental disclosure did not have a
significant effect on firm value. The study recommend that firms should invest
in robust governance frameworks, critically review their social strategies and
reconsider the need to invest in environmental activities. It also recommends
that government and industry regulators should support smaller firms with
governance improvements because it has a direct impact on their value.
Additionally, regulators should mandate ESG disclosure of quantitative metrics,
including environmental, social, and governance data, to improve reporting
quality. Finally, the study recommends a review of the stakeholder theory based
on the finding that not all stakeholders contribute uniformly or even positively
to firm value.
Description
A Research Thesis Submitted In Partial Fulfillment of the Requirements for the Award of the Degree of Doctor of Philosophy in Business Administration (Finance) to the School of Business, Economics and Tourism of Kenyatta University .November, 2025
Supervisors
Job Omagwa
Peter Ndung'u