Journal of Business & Financial Affairs

The Mediating Effect of Firm Performance on the Relationship between Ownership Structure Dimensions and Corporate Social Responsibility Disclosure by Firms Listed in Nairobi Securities Exchange, Kenya

Abstract

Ariko John Namoit*, Josephat Cheboi Yegon and Michael Korir

Firm performance is one of the most important concepts of business strategy. Regardless of its importance and ubiquitous use, there is no consensus about its precise definition and dimensionality. This paper examined the mediating effect firm performance on the relationship between firms’ ownership structure and its disclosure of CSR activities. Firm performance was proxied by return on assets. Ownership structure dimensions are managerial, institutional, foreign and ownership concentration. The paper employed Barron and Kenny mediation procedure. The results showed that firm performance mediated positively the relationship between managerial, institutional and ownership concentration and the corporate social responsibility disclosure at coefficient’s 0.165, 0.025 and 0.024, respectively. Further, there was negative (-0.001) mediation effect on the relation between foreign ownership and the corporate social responsibility disclosure. The form of mediation was partial mediation. The positive relationship suggests that for a company to engage and disclose its CSR activities, performance plays a critical role. It confirms that firms with a better firm financial performance leads to better quality CSR reporting and that the older the companies compounded with stable financial performance the more aggressive they participate in the CSR activities. Firms need to utilize various risk management practices such as identification, analysis, monitoring and evaluations of the firm activities to enhance efficiency in firm performance and in return engage and disclose more on CSR issues. This may be achieved through establishment and implementation of risk identification, monitoring and evaluation policy framework which significantly influence firm performance and thereby enhances shareholder capabilities to identify, analyze and evaluate all risks that hinder the institutions from achieving its objectives.