Board Capital, Foreign ownership and corporate social responsibility disclosure among listed firms of the Nairobi Securities exchange, Kenya

Abstract

Corporate Social Responsibility (CSR) disclosure has gained traction in the realm of scholars worldwide. In the dynamic business context, firms are expected to report on their social activities in order to gain legitimacy, minimize risk exposure, and meet expectations of diverse stakeholders. However, in emerging economies, most firms are still under pressure from society to bear their social obligations and to make this information known to the diverse stakeholders. Since boards are the focal points for corporate strategy, most organizations rely on them in an attempt to surmount stakeholder pressures and to make decisions on whether or not to engage in CSR disclosure. Whereas there is consensus among scholars that boards play an influencing role on CSR disclosure, there is still inadequate evidence in a developing setting, particularly Kenya. Although few studies have tested the relationship between board capital and CSR disclosure, the role of foreign investors has largely been ignored. Therefore, the study seeks to determine whether foreign ownership moderates the nexus between board capital and CSR disclosure in Kenya. The specific objectives were to determine the effect of board independence, expertise, and relations on CSR disclosure as well as foreign ownership as a moderator in the relationship. The study is anchored on resource dependence, human, social, and stakeholder salience theories. The study adopted positivism paradigm, explanatory and longitudinal designs. The target population was all listed firms in Kenya. The secondary data was collected from published reports using both content analyses and document analysis guides from 2008 to 2019 with 639 firm year observations from 56 firms. Both descriptive and inferential statistics were used to analyze the data by employing panel and hierarchical regression model. The study showed that board independence (β=.1214, p<.05), board expertise (β=.0571, p<.05), and board relations (β=.0277, p<.05) had a positive and significant relationship with CSR Disclosure. Further, the interaction effects showed that foreign ownership positively moderates the relationship between board independence (β=.0854, p<.05) and CSR disclosure and also positively moderates the relationship between board relations (β=.088, p<.05) and CSR disclosure, whereas it had a negative and insignificant effect on the relationship between board expertise (β= -.0393, p>.05) and CSR disclosure. The study concludes that the board member’s independence, expertise and relations are central to CSR disclosure in listed firms. Moreover, the presence of foreign investors enhances the role of independent directors and expert directors in implementing CSR disclosure. The findings support the resource dependence perspective and the human capital view that for a firm to enhance its CSR disclosure it has to employ board members capabilities and independence, and that how long they relate is equally important. It further supports the stakeholder salience theory that the board prioritizes the assertions of foreign owners to engage in CSR disclosure when making decisions. The study therefore, recommends that for listed firms to advance CSR Disclosure, it should have board members who have the requisite expertise, are independent and who network well internally. Furthermore, such boards should promote increased foreign ownership in order to accomplish their CSR Disclosure goals.