The Effect of Capital Structure On Market Share of Insurance Firms in Kenya

Abstract

Insurance firms are key players in the growth of an economy. However, the intake in Kenya is still low as reflected by the insurance penetration rate which stands at 2.79%. This means that insurance companies have to come up with competitive strategies to gain a piece of the market share. Capital structure is an important factor for a firm’s management as well as competitive behaviour. The objective of this study therefore, was to determine the effect of capital structure on the market share of insurance firms in Kenya. This study employed descriptive survey design with the target population being the 52 registered insurance companies. This study utilized an all-inclusive sampling procedure. Secondary data of a period of 5 years between2012-2016 was obtained from the IRA audited annual reports was utilised. The market share was the dependent variable while capital structure will be the independent variable. Other variables were profitability and age of the firm. A linear regression analysis was ran to determine the extent which capital structure affects the market share of the firms from which conclusions and recommendations will be made. The results gave an R-Squared of 0.2155 indicating that 21.55% of the changes in market share of insurance firms were due to the changes in the independent variable. Further, the findings indicated that capital structure, profitability and the age of the firm would positively affect the market share at the rates of 16.82%, 38.76% and 168.08% respectively. The findings of this paper are useful to finance managers who need to maintain an optimal capital structure while seeking to grow the market share as well as the regulator in regulating the insurance industry.