Does Corporate Environmental Reporting Improve Stock Liquidity? Evidence from Kenyan Listed Firms

Abstract

Purpose

In this chapter, we examine whether corporate environmental reporting (CER) by listed companies in Kenya improves stock liquidity. The investigation is motivated by the growing interest by corporations, investors, and regulators toward embracing ecological protection with a view to creating sustainable societies for the future.

Design/Methodology/Approach

Using a panel dataset comprising of 244 firm-year observations from 50 listed firms in Kenya over a five-year period (2011 to 2015), we perform fixed-effects regressions to discern whether CER is associated with stock liquidity. To examine this, we utilize bid-ask (as well as quoted) spreads measured over month −9 to month +3 relative to a firm’s year end.

Findings

Despite the seemingly low levels of CER across firms in the sample (average: 32.6%), the results depict that CER is positively associated with stock liquidity. The results are robust even when we consider changes in bid-ask spreads and CER together with the other variables. The same results emerge when we study the association between bid-ask spreads and each CER item at a time over the period 2011–2015.

Practical Implications

The results imply that listed companies in Kenya that engage in higher CER seem to be more attractive to investors. The higher CER seems to improve the information environment, hence reducing information asymmetry and therefore attracting investors. The results provide some evidence of positive economic consequences of engaging in additional disclosure over and above the traditional corporate financial reporting.

Originality/Value

The study adds onto the dearth of literature on the economic consequences of embracing additional disclosure frameworks in developing countries where the adoption of alternative reporting frameworks is at infancy.

Citation

Mathuva, D.M., Wachira, M.M. and Injeni, G.I. (2019), "Does Corporate Environmental Reporting Improve Stock Liquidity? Evidence from Kenyan Listed Firms", Environmental Reporting and Management in Africa (Advances in Environmental Accounting & Management, Vol. 8), Emerald Publishing Limited, Leeds, pp. 9-34. https://doi.org/10.1108/S1479-359820190000008002