Sustainability reporting, directors’ ownership and financial performance of listed manufacturing firms in Africa

Abstract

Sustainability reporting cannot be overlooked due to the firm's current and future ramifications. However, sustainability reporting standards are generally optional, and corporations are hesitant to incorporate new systemic procedures without a quantifiable economic gain. Manufacturing enterprises in Africa demand greater resources to operate, thus their actions to limit and mitigate harm must be reviewed. Convergence of interest asserts that if directors' and the firm's interests coincide, the firm will perform better financially. By using the GMM estimating technique, this research examined the moderating effect of directors' ownership in the relationship between sustainability reporting and the financial performance of 154 manufacturing companies. A total sample of 158 was employed however some firms appeared on multiple stock exchanges and these duplicates were omitted to arrive at a sample size of 154 firms. The study also examined the level of sustainability reporting by African manufacturing firms. First, the study found that African manufacturing firms scored very low marks in the level of sustainability reporting. Also, directors’ ownership positively moderates the relationship between economic disclosures and both ROA and ROE only. It is recommended that manufacturing firms in Africa should increase their sustainability reporting disclosures, especially those that pertain to the environmental impact of their activities as well as maintain or increase their directors’ ownership levels to ensure that they positively affect their economic disclosures and financial performance.