Background Information

CSRD is a continuous commitment to ethical activities that contribute to economic progress while also enhancing the quality of life for employees and their families, as well as local communities and society. On the other hand, CSR is defined by the Commission of the European Communities [1], as a concept for firms to include social and environmental issues on a voluntary basis in their business operations and relationships with stakeholders. CSR is defined by the International Organization for Standardization (ISO) 26000 as an organization's responsibility for the effects of its decisions and activities on society and the environment through transparent and ethical actions that are consistent with sustainable development and social welfare. It considers the aspirations of stakeholders; Complies with relevant legislations and in agreement with international standards of conduct which are incorporated into the organization (ISO 26000). Kadlubek argues that the focus of firms is not only about maximizing profit but also about social development, healthy lifestyle and the participation in voluntary actions for the quality of environmental projection. Kadlubek used this as definition of social responsibility.

The release of financial and non-financial information pertaining to a firm's relationship with its physical and social surroundings is referred to as disclosure [2]. It is the process of conveying the social and environmental consequences of an organization's economic behaviour to interest groups inside society as well as the public. This involves the provision of information on staff, legal standards, education, engagement in community events and environmental reporting. Gray et al. proposed that it is not necessarily restricted by comparison with designated recipients of information and that the information deemed to be a CSR can, in principle, cover any subject.

Besides the definition of CSR, many authors have tried to examine the outcomes of CSR activities for firms. Luo and Bhattacharya [3], Berens, Riel and Bruggen [4], Klein and Dawar, [5] and Sen and Bhattacharya, [6], have shown that CSR activities may give firms commercial benefits. The researchers have argued that CSR initiatives may provide businesses with commercial advantages. Further, CSR would enhance brand or company assessments, customer happiness, loyalty and customer-firm attribution. Mohr and Webb [7], state that CSR can change consumers purchase intentions and has an even stronger effect than the price of products and services. Other researchers have tried to find the impact of CSR on the financial performance of firms. 

CSR has a favourable influence on financial performance for the top 500 green firms in the United States, according to Wang and Sarkis [8]. In addition, Li, Cao, Zhang, Chen, Ren and Zhao [9], find significant positive effects for Chinese energy-intensive listed firms. Miras-Rodriguez et al. [10], finds that CSR has a positive effect on financial performance and vice versa using a Spanish sample. El Ghoul, Guedhami, Kwok and Mishra [11], find that better CSR scores lead to lower cost of capital. Since CSR activities are very costly for firms, as proven by the large amounts of money spent in CSR, the research to capture the impact of CSR is comprehensible. However, not all researchers have found positive outcomes of CSR. Schreck [12] and Nelling and Webb [13], find no significant impact between CSR and financial performance. The research of Brammer, Brooks and Pavelin [14], finds a negative impact of CSR on financial performance, using stock returns as measure of financial performance. The difference in outcomes may come from the use of different measurement techniques.

Ownership Structure Dimensions

Ownership structure highlights the legitimacy of the proportion of owners in relation to stake in the company and has long been viewed as a relevant external control mechanism for monitoring the management behaviour and choices affecting the board members [15]. However, the ownership structure functions are multidimensional, as the conduct and performance of owners rely not only on the kinds of executives but also on industry and institutional culture. The agency theory shows that ownership structure functions as a protection mechanism in aligning the activities and behaviour of executives [16].

There is a beneficial relationship in conditions of atmosphere and product efficiency between the equity of top management and social consequences [17]. Owner-managed companies, on the other hand, do not invest dramatically in socially responsible practices since their potential income may far outweigh the cost of investing in those activities. Thus, less CSR information is expected in owner-managed businesses [18]. Oh-Won et al. [19], further suggests that financial markets may not regard social investments as seriously as in developed economies as in underdeveloped ones. If this is accurate, it means that investors cannot benefit from this social expenditure. Consequently, the CSR rating of the company can suffer. Institutional investors may catalyze more corporate participation in CSR in two ways: by becoming more intimately involved in their decision-making processes, or by investing solely in firms that consider social responsibility in their operations. Although some institutional investors, such as hedge funds, are searching for short-term gains, most of them are looking for steady long-term returns on their assets to meet their commitments [20,21].

Board Characteristics

Business boards across the world have received a lot of attention in recent years because of corporate failures and questions about how firms operate and how they are regulated. For adequate performance by the board of directors, Economies have established a Code of Corporate Governance, which lays out the principles and specific guidelines on structures and procedures that businesses should follow to make good corporate governance an important part of their business transactions and culture. Board components have a major impact on an organization's success and degree of corporate governance standards [22]. Senior management is under increasing pressure to strengthen its internal risk management systems. Increasing the competitiveness of an organization's personnel, including the board and top management, increases the chances of success. The board of directors' and senior management's competency level will enable them to capitalize on opportunities and reduce dangers connected with risks for the benefit of the bank, particularly in terms of improving competitive advantage. According to Asghar et al. compliance with governance procedures limits management's ability to divert their energy away from value-destroying activities and toward value-creating activities, thereby protecting shareholders' interests. The board's choices and actions should represent the needs of the shareholders, which would include a business's sustainable growth with an appropriate risk to attain a long-term return on the investment [23]. 

The collapse of multiple internal governance structures often quoted as the primary contributors to the global economic crisis between 2007 and 2008 [24,25]. The board of directors is regarded as a critical mechanism of corporate governance because it is responsible for monitoring, setting policy, providing adequate resources and improving advisory processes to ensure that management fulfils its responsibilities and passes laws that prioritize the overall shareholders' interests. An independent board will help to defend shareholders' interests since they are supposed to represent shareholders and to increase company value by monitoring top management and advising managers on corporate plan implementation [26]. As a result of this expectation, it is critical for firms to improve the board's independence while also clearly identifying the role of directors and their obligations to ensure the efficacy of management performance monitoring. According to previous research, board independence and its impact on company performance appear to be one of the most contentious topics in many businesses [27].

In understanding the relationship between board independence and company success, two contrasting explanations are advanced by agency theory and stewardship theory. To effectively supervise CEOs, agency theory hypothesizes that the supervisory board should be controlled by independent non-executive members. If non-executive directors outnumber executive directors, their performance will improve owing to their independence from business administration, which lowers insider self-dealing. Alternatively, according to stewardship theory, the non-executive board should be controlled by inside members in order to make successful choices since they are more knowledgeable about the business than outside directors. According to this idea, managers are competent individuals who have more concrete information, allowing them to make more reasonable decisions than external members of the board. As a result, the firm's performance improves.

Objectives of the Study

The paper aimed at analyzing the effect of managerial and institutional ownership structure dimension on CSR disclosures among the firms listed in Nairobi Securities Exchange. It further looked at the moderating role of board characteristics specifically the board independence. The key objectives of the paper:

• To determine the effect managerial ownership structure dimension on CRS disclosures

• Examine the impact of institutional ownership structure on CSR disclosures

• To assess the effect of board independence in moderating the link between managerial ownership structure dimension and CSR disclosures

• To investigate the role of board independence members in regulating the link between institutional ownership structure dimension and CSR disclosures

To answer the following objectives, the study hypothesized these objectives as follows:

• Managerial ownership structure dimension does not affect CRS disclosure.

• Institutional ownership structure dimension does not influence CRS disclosure.

• Board independence do not moderate the relationship managerial ownership structure dimension does not affect CRS disclosure.

• Board independence do not moderate the relationship institutional ownership structure dimension does not affect CRS disclosure

Since the first two objectives requires a direct effect estimation and the variables retrospectively observed, the study utilized random effect model (REM). If the data is indicative of a sample rather than the full population, the random effects model is acceptable since the expression of the individual impact could be a random result rather than a fixed set parameter. 

Testing for direct effect-The direct effects of managerial and institutional ownership structure on CSR disclosure is as follows:

Where:

Testing for Moderation

This study followed suggestions propagated by Baron and Kenny’s [28] and Frazier et al. [29], regarding the use of multiple regression analyses to test for moderation effect. Moderation happens when the connection between two variables varies depending on the level of another variable in magnitude, direction, or statistical significance. A moderator variable is a third variable that influences the connection between two variables (dependent and independent variables). A moderation effect could be enhancing, buffering or antagonistic. If the moderator variable is substantial, it might have an amplifying or weakening impact on the dependent and independent variables. For various levels of moderating variable M, the causal influence of independent variable X on dependent variable Y is critical. The impact of X on Y given a fixed value of M is referred to statistically as the ‘simple effect' of independent variable on it dependent variable. The simple regression equation for effect of X on Y considering the time t and firm i is as follows.

Figure 1: Path Analysis for Moderation

Figure 2: Path Analysis for Moderation of BIND on MAN and CSR

Figure 3: Path Analysis for Moderation of BIND on INST and CSR

Assume that the aforementioned relationship exists and is statistically significant. When the moderator variable M is introduced into the model, the moderating impact of M in the regression is as follows:

The regression coefficient  quantifies the interaction impact between the independent variable  and the moderating variable .  When  = 0, measures the basic effects of  (no interaction involved). When testing moderation in a model, a researcher must test  (the coefficient of interaction term ). If  is substantial, then the moderator  is thought to regulate the connection between  and. If the variables  and  are both continuous, the researcher must compute the mean-centered value for  and  where  and. As a result, the new variables  and  have a mean of zero. Variable  does not have to be centred. For graphical representation of path analysis, figure 1 below illustrates how regression equation is modelled in STATA graphic.

The model illustrated in Figure I can be extended and fitting variables considering a study with more than one independent variables. Fitting variables into equation 3, the following equation tests for moderation effect of the board independence on each of the independent variables and the dependent variable.

The model illustrated in Figure I can be extended and fitting variables considering a study with more than one independent variables. Fitting variables into equation 3, the following equation tests for moderation effect of the board independence on each of the independent variables and the dependent variable.

Further, testing moderating role of board independence on INST and CSR, equation 5 estimated and represented graphically as shown by Figure 3.

Figure 4: Path Diagram of the Moderated Relationship of MAN on CSR

Figure 5: Path Diagram of the Moderated Relationship of INST on CSR

Table I presents the results for the estimated models. Managerial ownership structure dimension (MAN) significantly influenced corporate social responsibility disclosures while institutional ownership (INST) did not. Board independence significantly moderated the relationship between MAN and CSR but failed to do so on the relationship between INST and CSRD. In this regard, hypothesis and were rejected and concluded that objective 1 and 3 have been supported that managerial ownership structure dimensions of firms listed in Nairobi Securities Exchange influenced disclosures of CSR. It further claims that board independence has a positive and significant effect by moderating the link between MAN and CSR disclosure. Hypothesis and failed to be rejected meaning this paper did not had sufficient evidence to conclusively support the idea that institutional ownership dimension and its moderated relationship have influence on CSR. Results can also be presented on a path diagram as shown in Figure 4 and 5. The covariance relationship between managerial ownership and the moderating variable (board independence) was insignificant but was significant between institutional ownership and board independence. From the results we can say that managers or directors have a direct mechanism that enforces rules for corporate governance. They have a direct decision on whether to engage and disclosure what the company have contributed to social welfare or on social matters concerning the communities.

Table 1: Model Estimation Results

Wibisono [30], one of the factors that can influence CSR is the company presence of CSR activities can help achieve corporate sustainability. This is because CSR may boost value generation because of the company's operations while minimizing losses to the company's stakeholders. One component of corporate governance is ownership. The presence of possible roles for other corporate governance measures, such as board composition and executive compensation, can assist in the creation of a sustainable firm [31]. So that if the company's leaders are not responsive to social problems, this will certainly neglect the company's social activities. When managerial share ownership is small, managers will attempt to maximize their own interests in comparison to the company's interests. While the larger the manager's share ownership, the more productive the manager's activities in enhancing the value of the firm, this is because managers' decisions will be felt instantly.

Company executives will share social information to boost the company's image, even if it means sacrificing resources for these operations [32]. Ghazali [18] and Khan et al. [33], on the other hand, discovered that management share ownership had a negative impact on CSR reporting. The greater managerial ownership, the disclosure of social responsibility tends not to be done much because managers feel their company is so that public accountability is not important. There are various results, indicating that managers' attitudes towards CSR activities will be quite different. As a manager, you will consider the costs and advantages of CSR initiatives. If it is considered that CSR is sufficient to provide benefits for the future, the manager will carry out extensive CSR reports. But if the manager considers the existence of cost expenditure that exceeds the benefits, then CSR reporting will certainly narrow. This is consistent with the view stated by Lako [34], which states that there are two views related to CSR, namely based on cost perspective and based on benefit perspective.

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