Corporate social responsibility disclosure, board Independence, financial performance of listed companies In Kenya

Abstract

The listed companies are often seen as high achievers due to their strict regulatory compliance and effective oversight. However, this same rigorous adherence may contribute to their challenges in the Kenyan market, where issues with board independence could be a significant factor in their underperformance. The rigid governance structures, while beneficial in some contexts, might hinder their adaptability and responsiveness, leading to difficulties in navigating the unique dynamics of the Kenyan business environment. This study investigated the influence of corporate social responsibility (CSR) disclosure on the financial performance of Kenyan-listed companies. It focused on how the independence of a company's board of directors affects this relationship. The research examined the impact of transaction costs, reputation capital, and agency costs on financial performance, and explored how board independence moderates these variables. The theoretical frameworks grounding this research are Transactional Cost Theory, Agency Theory, and Stakeholder theory. The study focused on listed companies in Kenya, comprising 64 companies across several industries, and employed an explanatory research approach. This study used an explanatory research approach to investigate and elucidate the causal links between financial performance in Kenyan-listed companies and corporate governance characteristics. This all-inclusive method produced a dataset of 693 observations. The methodology of choice was secondary data collecting, with data sheets serving this function. The study profiled and summarized patterns in each firm's data using descriptive statistics, which include measures of central tendency and dispersion. It also used Stata version 16 to do panel regression analysis to examine the type and importance of the association between independent factors and the dependent variable. This analysis sheds light on the impact of CSR disclosure on financial performance and how board independence moderated this relationship. The findings indicated that transaction cost exhibits a strong positive correlation with financial performance (r = .691, p < .001). Reputation capital also shows a very strong positive correlation with financial performance (r = .866, p < .001). Agency costs are significantly correlated with financial performance (r = .841, p < .001), indicating a robust relationship. Board independence is positively correlated with financial performance (r = .686, p < .001). Control, however, shows no significant correlation with financial performance (r = .097, p = .449). These findings suggest that factors such as reputation capital, agency costs, and board independence significantly influence financial performance. The study tested three hypotheses on the moderation effects of board independence on financial performance in Kenyan listed companies. The hypotheses for transaction costs (R²∆ = 0.07; p = 0.02) and reputation capital (R²∆ = 0.06; p = -0.044) were rejected, showing significant moderation, while the hypothesis for agency costs (R²∆ = 0.04; p = 0.079) was failed to be rejected. The study makes several recommendations for Kenyan listed companies: they should implement key performance indicators, foster ethical corporate cultures, balance agency costs with growth investments, adopt technology-driven process optimization, and regularly evaluate their operations against best practices. Management should reduce transaction costs by streamlining procedures and enhancing operational efficiency. Transparent governance is crucial to minimizing agency costs and maintaining integrity. Theoretically, reputational capital underscores the value of ethical behavior for long-term success, while understanding transaction costs emphasizes resource allocation optimization. Policy-wise, consumer protection laws safeguard reputational capital, promoting ethical business conduct and aligning stakeholders' interests for long-term value creation. The study recommend for future study to explore the impact of board independence on financial performance across different sectors in Kenya to determine sector-specific dynamics.