Effect of sustainability reporting on financial performance of firms listed at the Nairobi securities exchange in Kenya: the moderating role of ownership structures

Abstract

Over the past decade, several listed firms in Kenya have experienced poor financial performance leading to delisting or suspension from the Nairobi Securities Exchange (NSE). This study examined the effect of ESG disclosures on the financial performance of NSE-listed companies and assessed whether ownership structure moderated this relationship. Anchored on the Agency, Stakeholder, Signaling and Legitimacy theories, this study adopted a mixed methods design using secondary ESG and financial data from a census of 62 NSE-listed firms between 2019-2024, extracted using a Global Reporting Initiative (GRI)-aligned data extraction sheet. Panel regression models tested the effect of disaggregated environmental, social, and governance disclosures on return on assets (ROA), while interaction terms captured ownership-structure moderation. Complementary thematic analysis of narrative disclosures provided qualitative context. The Findings show that environmental and governance disclosures had a positive and statistically significant association with ROA (p< 0.05), whereas social disclosures were positive but not significant after controls. Ownership structure particularly institutional and foreign shareholding strengthened the ESG-performance link, confirming a moderating effect. Diagnostic tests (normality, multicollinearity, heteroskedasticity) supported model robustness. Thematic analysis highlighted that firms with high institutional ownership emphasized climate-risk reporting and board transparency, reinforcing quantitative results. These results suggest that credible ESG reporting, coupled with active institutional or foreign ownership, enhances profitability and market confidence among Kenyan listed firms. The study provides actionable evidence for regulators considering mandatory ESG disclosure, and for investors and managers seeking to align sustainability practices with financial performance.