The Effect of environmental, social and governance disclosures on firm value of firms listed on the Nairobi Securities Exchange

Abstract

This study investigates the link between environmental, social, and governance (ESG) disclosures and the firm value of firms listed on the Nairobi Securities Exchange (NSE). The research investigates ESG practices to demonstrate how a company's commitment to and effectiveness in attaining environmental, social, and governance goals produces intangible value that leads to improved total firm value. The empirical analysis looked at the association between ESG practices and ROA and ROE using the stakeholder theory and the ESG conceptual framework. Since most previous research has focused on corporate social obligations and sustainability disclosures, there is a dearth of literature on the relationship between ESG disclosures and business value. To collect, present, and evaluate data, the study used mixed methods research (MMR). The study used annual ESG data from 62 Kenyan enterprises registered on the Nairobi Stock Exchange (NSE) from 2013 to 2020. The influence of ESG disclosures on business value was investigated using random effect panel regression analysis. The data show a substantial link between regulatory agencies and stakeholder pressure, as well as the amount and reasons for ESG disclosures among NSE-listed companies. Corporates, investors, regulators, and policymakers should all be aware of the findings. The study found that NSE listed companies should deliberate steps directed toward strategic governance, as well as internal and organizational cultures geared toward information disclosure, in order to reduce the cost of getting essential information. Despite having a secondary research reliability test, it was unable to uncover bias since data may have been modified by the firm to appeal to stakeholders such as customers, investors and government. Future research should look into the factors that influence ESG disclosures in a variety of scenarios and settings, including country-specific, regional, and sector-specific scenarios.