The Effect of sustainability reporting practices on the operational performance of manufacturing firms in Nairobi, Kenya, mediating effect of firm capabilities

Abstract

For years, the manufacturing sector has been at the cornerstone for supporting achievement of the country’s economic goals and stimulating development. However, in the recent past the industry has seen a decline in its overall output as more companies shut down or scale down their operations in the local market. This is blamed on a myriad of changes in the business environment as well as regulatory/government policies. Studies have shown that in developed economies the uptake of sustainability reporting practices have been key to stimulating growth of industries. Locally, this has not been extensively studied hence this research sought to determine if sustainability reporting practices can impact the operational performance of manufacturing firms and whether firm capabilities moderate the relationship between the independent variables and the dependent variable. The research was informed by the triple bottom line framework, stakeholder theory and the dynamic capabilities theory. A positivism research philosophy was applied to guide the research with a descriptive approach supporting the statistical testing of the association between the variables. The study population was drawn from 950 manufacturing firms operating in Nairobi County that are registered with the association of manufacturers. A sample of 400 managers was considered in the research. The survey utilized structured questionnaires in the data collection with a combination of electronic methods and physical data collection utilized. Correlation results revealed that there was a moderate positive and significant relation between environmental reporting practices, social reporting practices and the operational performance of manufacturing firms in Nairobi, Kenya. The analysis indicated there was a strong positive and significant relation between, environmental, social and governance reporting practices and the operational performance of manufacturing firms in Nairobi, Kenya. The findings from the regression analysis revealed that there was a positive and significant relationship between sustainability reporting practices (ESG) and operational performance of manufacturing firms in Nairobi. Results on the moderator variable revealed a positive and significant effect of firm capabilities on the operational performance of manufacturing firms in Nairobi, Kenya. We recommend development industry-wide standards and guidelines for sustainable reporting practices tailored to the manufacturing sector in Nairobi, Kenya and strengthening customer feedback mechanisms and complaint resolution systems.

Key words: Sustainability, manufacturing firms, ESG reporting, firm Capabilities, Operational performance