RELATIONSHIP BETWEEN CORPORATE SUSTAINABILITY PRACTICES AND FINANCIAL PERFORMANCE OF COMMERCIAL BANKS IN KENYA

Amos Kipkemboi Kosgei, Dr. Irene Cherono

Abstract


This study sought to assess the relationship between corporate sustainability practices and the financial performance of commercial banks in Kenya. Specifically, the study aimed to assess the relationship between economic, social, environmental, and governance-related sustainability practices and the financial performance of commercial banks in Kenya. The study was anchored on stakeholder theory, legitimacy theory, and agency theory. This study utilized a descriptive research approach, targeting 246 respondents comprising 41 top managers, 82 middle-level managers, and 123 lower-level managers. Primary data was collected using self-administered structured questionnaires. The study hypotheses were tested using regression analysis. The study reported findings based on two financial indicators: return on assets (ROA) and earnings per share (EPS). First and foremost, there was a positive and significant relationship between economic-related sustainability practices and ROA, as indicated by ?1 = .354 and a probability value (p-value) = .001 < .05. Regarding earnings per share (EPS), the relationship was also positive and significant (?1 = .313, p-value = .002 < .05). Secondly, social-related practices were positively and significantly related to both ROA and EPS, as indicated by (?2 = .310, p-value = .001 < .05) and (?2 = .318, p-value = .001 < .05), respectively. Thirdly, there was a positive and significant relationship between environmental-related practices and the ROA of commercial banks in Kenya (?3 = .322, p-value = .002 < .05). In terms of EPS, the relationship was also positive and significant (?3 = .329, p-value = .001 < .05). Lastly, the study documented a positive and significant relationship between governance-related practices and financial performance, as measured by both ROA (?4 = .337, p-value = .001 < .05) and EPS (?4 = .340, p-value = .001 < .05). The study concludes that all corporate sustainability practices, including economic, social, environmental, and governance-related practices, have a significant effect on the financial performance of commercial banks in Kenya. From the findings, this study recommends that the management of commercial banks in Kenya should enhance their utilization of retained earnings. In addition, commercial banks should focus on strengthening their community sustainability practices. Furthermore, commercial banks should develop and implement comprehensive environmental policies that align with global best practices.

Keywords: Corporate Sustainability Practices, Economic Practices, Social Practices, Environmental Practices, Governance Practices, Financial Performance


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