INTEGRATED REPORTING AND FIRM VALUE OF LISTED COMPANIES IN KENYA.

Abstract

Firm value in many companies has been deteriorating because of the lack of reporting financial and non-financial information, resulting in a lack of transparency and accountability. In today's world, most successful businesses recognize that any business venture's core purpose is to create firm value for investors, customers, and employees by adopting integrated reporting. Despite adopting integrated reporting, many companies are not doing well financially; hence, they need to do more research on integrated reporting. The study's main objective was to determine the effect of integrated reporting adoption on the firm value of listed companies in NSE. The specific objectives of the study were to determine the effect of financial capital reporting on the firm value of listed companies, to establish the effect of manufactured capital reporting on the firm value of listed companies, to evaluate the effect of environmental capital reporting on the firm value of listed companies, to examine the effect of intellectual capital reporting on the firm value of listed companies, to assess the effect of human capital reporting on the firm value of listed companies and to compare financial performance of firms that have adopted and those that have not adopted integrated reporting among listed firms at Nairobi Securities Exchange. Stakeholder theory, legitimacy theory, theory of intellectual capital, human capital theory, and trade-off theories guided the study. Positivism research philosophy was used to guide the study. A correlational research design was adopted. The study population comprised 23 companies adopting integrated reporting listed in the Nairobi Securities Exchange. The choice of the listed firms at the Nairobi Securities Exchange was validated because it was the only stock market in Kenya legally required to prepare integrated reports under the company act CAP 486. A census survey was employed. Secondary data was collected from the Nairobi Securities Exchange website from 2015 through 2022 for eight years. Panel summary statistics and panel data regressions were used to analyze the gathered data. The components of descriptive statistics included overall means, standard deviations, minimum and maximum ratios, the between-firm standard deviations, and the within- firm standard deviations. Panel data regressions included serial correlation tests, stationarity tests, Hausman tests, Breusch-Pagan Lagrange multiplier (LM) tests, and testparm tests. The Hausman test was used to select suitable models between the random effects (RE) and fixed effects (FE) for each variable modeling. The findings analyzed using STATA established that integrated reporting positively and significantly affects the firm value of listed companies in a way that increasing integrated reporting improves the firm's overall value. Firm value does not, however, vary significantly with time but is slightly influenced by unobserved firm-specific effects. Moreover, the benefits of adopting reporting standards are only felt in the long run. This finding reinforces existing research by adding the knowledge that the exact variance in firm value that unobserved firm-specific factors add to the idiosyncratic error can be determined when the appropriate model is employed. The findings are expected to be a key resource to policy makers as they will get additional information in formulating policies and guidelines concerning integrated reporting that will enhance proper reporting of financial and non-financial information to the stakeholders of various companies.