Moderating Effect of Environmental Regulatory Framework on the Relationship Between Green Investment Initiatives and Profitability of Manufacturing Firms in Kenya
No Thumbnail Available
Date
2026-02
Journal Title
Journal ISSN
Volume Title
Publisher
Stratford Peer Reviewed Journals and Book Publishing
Abstract
Despite their importance, manufacturing companies continue to encounter ongoing profitability challenges. Over the past decade, listed manufacturing firms in Kenya have experienced a consistent decline in return on assets (ROA), which reflects diminishing efficiency in asset utilization. This study aimed to assess how green investment practices influence the profitability of manufacturing companies in Kenya, while also examining the moderating influence of environmental regulations on this relationship. The research was underpinned by five theoretical perspectives: the Porter Hypothesis, Sustainable Finance Theory, Transaction Cost Economics Theory, Dynamic Capability Theory, and Institutional Theory. The study focused on ten manufacturing companies registered and publicly traded on the Nairobi Securities Exchange (NSE). Findings from correlation and regression analyses indicated that all four categories of green investment were positively and significantly associated with profitability. Among these, energy efficiency investments demonstrated the most substantial positive impact (r = 0.641, B = 0.821, p = 0.000), followed by investments in green supply chain management (r = 0.241, B = 0.447, p = 0.013) and renewable energy initiatives (r = 0.182, B = 0.314, p = 0.039). Sustainable waste management practices also showed a positive relationship with profitability, though the contribution was relatively modest (r = 0.094, B = 0.192, p = 0.233). Collectively, the green investment variables accounted for 38.6% of the variance in firm profitability (R² = 0.386), indicating considerable explanatory power. When the environmental regulatory framework was incorporated as a moderating variable, the explanatory strength of the model increased to 45.7% (R² change = 0.071, F change = 4.189, p = 0.006). This suggests that regulatory support amplifies the financial benefits derived from green investments. The study concludes that green investment initiatives significantly contribute to enhanced profitability in manufacturing firms, with regulatory policies providing a supportive, albeit limited, moderating effect. It recommends that policymakers reinforce environmental regulations and introduce incentives that encourage sustainable industrial investment. Manufacturing companies are also encouraged to embed green practices into their core operations as a strategy to boost competitiveness and profitability
Description
Research Article
Keywords
Citation
Karanja, T. W., Warui , F. W., & Aluoch, M. O. (2026). Moderating Effect of Environmental Regulatory Framework on the Relationship Between Green Investment Initiatives and Profitability of Manufacturing Firms in Kenya. Journal of Finance and Accounting, 10(2), 12–31. https://doi.org/10.53819/81018102t5416