Does CEO Financial Expertise Drive Sustainability Disclosure? Evidence from an Emerging Market and the Moderating Role of Stakeholder Pressure
Main Article Content
Keywords
CEO financial expertise, sustainability disclosure, stakeholder pressure, upper echelons theory, emerging markets, Nairobi Securities Exchange
Abstract
Upper echelons theory predicts that the cognitive frames executives bring to the corner office shape what firms choose to tell the world about themselves. Yet the specific question of whether a chief executive officer’s financial expertise translates into more substantive sustainability disclosure remains largely untested outside developed markets, and the conditions under which that expertise is activated or suppressed remain poorly understood nowhere more so than on the Nairobi Securities Exchange (NSE), where reporting volumes have risen sharply while reporting depth has lagged. Grounded in upper echelons, legitimacy, stakeholder and institutional theory, this study examines the effect of CEO financial expertise operationalised as a graded 0–3 expertise-depth score capturing the CEO’s academic qualifications, professional certification and accounting or finance experience on sustainability disclosure among NSE-listed firms, and asks whether stakeholder pressure, proxied by ownership concentration (the percentage of shares held by owners with at least a 5% shareholding), amplifies or attenuates that effect. Using a balanced panel of 320 firm-year observations from 32 NSE-listed firms (2014–2023), sustainability disclosure is measured through content analysis of annual and sustainability reports against a 38-item economic, environmental and social index scored on a 0–3 quality scale. Fixed-effects panel regression (Hausman-selected) and hierarchical moderated regression, with standard errors clustered by firm, show that CEO financial expertise exerts a positive and statistically significant effect on disclosure quality (β = 0.201, p < 0.001), robust to controls for firm size, age, and profitability. Counter to the complementarity assumption in the stakeholder-pressure literature, pressure significantly attenuates this effect (β = −0.090, p < 0.00). Although the incremental variance explained by the interaction is modest in absolute terms (ΔR² = 0.011), it lies squarely within the range typical of moderation effects detected. The study extends upper echelons theory by identifying a boundary condition executive human capital is efficacious, but its efficacy is contingent on external pressure intensity and cautions emerging-market regulators that pressure-based regimes may generate disclosure volume at the expense of substance.
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Benjamin K. Tarus , Department of Finance and Accounting, School of Business and Management Science, University of Eldoret, P.O. Box 1125-30100, Eldoret, Kenya
Department of Finance and Accounting, School of Business and Management Science, University of Eldoret, P.O. Box 1125-30100, Eldoret, Kenya
Carolyne Ayuma, Department of Finance and Accounting, School of Business and Management Science, University of Eldoret, P.O. Box 1125-30100, Eldoret, Kenya
Department of Finance and Accounting, School of Business and Management Science, University of Eldoret, P.O. Box 1125-30100, Eldoret, Kenya
Emmanuel Tanui , Department of Business Management, School of Business and Management Science, University of Eldoret, P.O. Box 1125-30100, Eldoret, Kenya
Department of Business Management, School of Business and Management Science, University of Eldoret, P.O. Box 1125-30100, Eldoret, Kenya