Relationship Between Board Diversity and Financial Performance of Insurance Firms in Kenya

Abstract

Board diversity is desirable in a firm because of its associated benefits it provides to the organizations. One of the bold steps taken by insurance companies to increase the capacity of the board to make their oversight function effectively is diversification of the corporate board. The objective of the study was to determine the relationship between board diversity and financial performance of Insurance firms in Kenya. The research was anchored on the agency, resource dependence and the upper echelon theories. To achieve the research objective the study adopted The Research Design used in this work is the descriptive research design. The population of the study comprised of all the insurance firms operating in Kenya. According to Insurance Regulatory Authority (IRA), as at the end of year 2016, there were 48 Insurance firms in Kenya. This formed the study population. Systematic sampling design was adopted in the study to select 20 insurance companies. The study used secondary data only. Data was analyzed using SPSS Version 22. Correlation analysis was carried out to find out the association between variables. Descriptive statistics such as mean and standard deviation was also be used to delineate variable characteristics. Regression analysis was used to establish the relationship between the independent and dependent variables. The study revealed that there exist strong, significant and positive correlation between gender diversity that is increase in women in the board and return on Assets. The study found that increase in ethnicity diversity on Corporate boards would increase financial returns in insurance companies in Kenya. The study revealed that increase in foreign board members increase ROA in insurance companies in Kenya. The study established that there exist a strong, significant and positive relationship between Board Composition financial performance in insurance companies. The study however, revealed that board size had a negative effect on financial performance in insurance companies in Kenya. The study concluded that gender diversity increase Return on Assets. The study conclude that ethnic diversity in the company board members would results into increase in ROA in insurance companies. The study concluded that increase in foreign director would lead to increase ROA in insurance companies in Kenya. The study conclude that there exist a strong, significant and positive relationship between Board composition on ROA. The study concluded that board size had a negative effect on financial performance in insurance companies in Kenya. From the conclusion, the study recommend that management of insurance companies should increase gender diversity in board members by increase of female directors, board ethnicity in the board, increase foreign director members, increase Non executive board membership and increase in female members in the board would positively increase Return on Assets.