Effect environmental activities on the financial performance of small and medium sized companies in Kenya

Abstract

This study therefore seeks to analyze the effect of annual cost of environmental activities on the financial performance of small and medium sized enterprises in Kenya. The study is anchored on triple bottom line model and stakeholders’ and corporate social responsibility theories. A descriptive study design has been adopted in order to observe and make inferences on the effect of corporate social activities spending of firm financial performance. The study targets a population of 100 top performing medium sized companies in Kenya because of their rank as best financial performers in the country and their involvement in corporate social responsibility activities. Secondary data was collected by use of data collection form and the data was obtained from annual financial reports for years ending 2014 to 2018. Data was edited, coded and analysed using descriptive and inferential statistics. Results were presented in form of tables and graphs. The study will enable the owners of small and medium sized enterprises to understand the resultant effect of corporate social responsibility on financial performance of small and medium enterprises. It will also aid decision makers to make informed decisions about planning of sustainable objectives and allocation of resources towards achievement of those objectives. Using results from random effects model, revealed annual cost of environmental activities by Small and Medium Sized Enterprises in Kenya can be used to predict the outcome of return on investment as a measure of the SMEs financial performance. When amount spent annually on environmental activities is increased by 1 unit, return on investment also decreases by -5.6109 units with other variables kept constant. This indicated that amount spent annually on environmental activities can be used to predict the SMEs returns on investments, though the relationship is inverse.