The Moderating Role of Transparency on Sustainability Reporting and Financial Performance of Corporate Firms in Kenya

Over the past two decades (2001–2021), corporate reporting has evolved to integrate sustainability concerns alongside traditional financial metrics. This shift is driven by increasing societal awareness, regulatory interest, and investor demand for non-financial information. However, despite the Kenyan government advocacy, implementation of sustainability reporting remains voluntary, with only 29 out of 65 listed firms adopting ESG reporting by December 2022. In 2021, Nairobi Securities Exchange in collaboration with Global Reporting Initiative introduced ESG Disclosure Manual to promote transparency in sustainability reporting. Despite this effort, a gap exists in empirical literature regarding the moderating role of transparency in the relationship between sustainability reporting and financial performance. Grounded in stakeholder theory, this study examined how transparency moderates the relationship between sustainability reporting and financial performance of listed corporate firms in Kenya. Using a census sampling technique, panel data were collected from 57 qualifying corporate firms from 2014–2023. A moderated multiple regression model was employed to analyze how transparency influences the link between sustainability reporting variables and financial performance, measured by return on equity. Findings revealed that transparency significantly moderates the effect of social reporting on financial performance (ß = 0.111, p = 0.029), enhancing its positive impact, while weakening the effect of environmental reporting (ß = -0.090, p = 0.042). Transparency had no significant effect on governance (ß = -0.071, p = 0.089) or stakeholder engagement (ß = -0.021, p = 0.391) as their p-values exceeded acceptable threshold of 0.05. Firms should enhance transparency in sustainability reporting to maximize financial benefits.