Effect of organizational factors on ESG disclosure practices among listed Kenyan firms: moderating role of manufacturing and service sectors

Abstract

Businesses are under growing pressure to provide ESG disclosures to quench the demands of investors, regulators, and key stakeholders who demand transparency and accountability. However, the level and quality of ESG disclosures among listed firms in Kenya remain inconsistent and largely underwhelming. This research therefore aimed to explore the influence of organizational factors on ESG disclosure practices among listed firms in Kenya. The study specifically investigated the impact of resource factors, board characteristics, and ownership structure on ESG disclosure practices. Further, it examined the moderating role of sector affiliation was reviewed in the study. The study was guided by Institutional Theory and Stakeholder Theory. A positivist research philosophy was utilized to underpin the study. Further, a descriptive research design was applied to guide the study with population drawn from all the firms listed at the Nairobi Securities Exchange as of December 2024. The research utilized secondary data obtained from the annual audited financial statements of listed companies spanning the years 2010 to 2024. Data was gathered through document analysis. The correlation analysis between firm characteristics and the adoption of ESG disclosures within the firms showed a weak positive and significant association between firm size and the ESG disclosure. The findings on board characteristics indicated there was weak positive association between presence of female board members, outside directors, and moderate positive relation between presence of male board members and adoption of ESG disclosures. Findings indicated that ownership structure and sector affiliation had a moderately positive association with adoption of ESG disclosures within the listed firms. The regression results indicate that organizational factors play a significant role in shaping ESG disclosure adoption among listed firms in Kenya. Firm age emerged as a positive determinant of ESG disclosure practices, while firm size also showed a positive and statistically significant effect. Regarding board characteristics; board female and outside directors indicated a statistically significant positive effect on ESG disclosure adoption while board composition had an insignificant effect. Further, ownership structure exhibited a negative and statistically significant effect on ESG disclosure practices. The findings further revealed that there existed a positive and statistically insignificant moderating effect of sector affiliation on the relationship between organization factors and adoption of ESG disclosures among listed firms in Kenya. The study therefore recommends that regulators, in this case the Capital Markets Authority and the Nairobi Securities Exchange should design targeted ESG capacity-building programs for younger listed firms. The study also recommends that boards of listed firms should invest in ESG training for directors. Firms should also benchmark ESG disclosures against peers within the same sector rather than across unrelated industries to improve relevance and comparability. Future research could adopt alternative methodological approaches, including qualitative case studies or mixed-methods designs.

Key words: ESG disclosures, listed firms in Kenya, resource factors, board characteristics, ownership structure