The conditional effect of corporate social responsibility disclosure on shareholder activism, dividend policy and market value for companies listed at Nairobi Securities Exchange

Abstract

Market value has gained considerable prominence in influencing investment decisions among listed firms in many security markets worldwide. Over the years, listed firms have witnessed market value fluctuations and increased shareholder activism. This study was motivated by the fact that whereas scholars are keen on the effects of shareholder activism on market value, most of the studies, if not all, are either looking for direct effects or indirect effects. None is keen on the conditional effect of the third variable of Corporate Social Responsibility Disclosure (CSRD). Previous studies have shown conflicting results of shareholder activism in different security markets. This study sought to determine the conditional indirect effect of CSRD on the relationship between shareholder activism and market value through dividend policy among firms listed at Nairobi Security Exchange (NSE). The study objectives are to; investigate the direct effect of shareholder activism on the market value of listed firms at NSE, assess the direct effect of shareholder activism on dividend policy of firms listed at NSE, determine the direct effect of dividend policy on the market value of firms listed at NSE, establish the mediating effect of dividend policy on the relationship between shareholder activism and market value of firms listed at NSE, investigate the moderating effect of CSRD on the relationship between shareholder activism and market value of firms listed at NSE, assess the moderating effect of CSRD on the relationship between dividend policy and market value of firms listed at NSE and determine the moderated mediation effect of CSRD and dividend policy on the relationship between shareholder activism and market value among listed firms at NSE in Kenya. The study was guided by the Modigliani and Miller (MM) theory, Gordon theory of relevance, stakeholder management theory, and agency theory. The study employed an explanatory research design with the study population of 64 listed firms at the Nairobi Securities exchange. Fifty four (54) firms were selected. The study specifically adopted the ex-post facto design; an after-the-fact research design suitable for testing hypotheses about cause-and-effect relationships such as was expected in this study. The study used secondary data from annual/published financial reports of firms listed in NSE between 2008 and 2017. Both descriptive and inferential statistics were used to analyze data.Descriptive statistics included means, standard deviations, minimum and maximum values, skewness, kurtosis and Jarque-Bera. The main inferential statistics was the longitudinal/ panel data regressions. Key findings indicated moderated mediation effect whereby shareholder activism had a conditional indirect effect on market value through dividend policy given by -3.56 + 0.077 CSRD under fixed time and fixed effects. The conditional direct effect of shareholder activism on market value was given by 13.2 – 16.6 CSRD, under fixed time and firm effects. Other findings indicated that shareholder activism had a positive and significant effect on market value (b=0.696, p<IzI=0.01). Shareholder activism had a positive and significant effect on dividend policy (b= 0.099, p<IzI = 0.01). The dividend policy had negative and no significant effect on market share (b=-1.953, p>ItI=0.05). Dividend policy did not mediate the relationship between shareholder activism and the market value of listed firms at NSE (a*b=-0.291,p>IzI=0.05). CSRD moderated the relationship between shareholder activism and market value (b= -17.3 p<0.01), and CSRD moderated the relationship between dividend policy and market value of firms (For interaction b = -82.85, p<0.01). The study concluded that shareholder activism had significant effects on both market value and dividend policy. Despite having a negative effect on market value, dividend policy did not mediate the relationship between shareholder activism and market value. The main conclusion arising from the study was that in the context of firms listed at the NSE, CSRD had conditional interactive effects with shareholder activism, dividend policy, and the market value. It recommended that listed firms need to take cognizance of the important role that shareholder activism plays in market value and dividend policies of the firm. Need to be explicit when framing dividend policies due to their potential impacts on the market value. When bringing on board CSRD practices firms should be conscious of potential contributions of contextual factors including firm size and growth. The study suggested a further study which incorporates other variables in moderated mediation such as capital structure, corporate governance and minority share ownership on market value.