The Relationship Between Corporate Governance and Financial Performance in the Insurance Industry in Kenya

Abstract

This study’s main purpose was to investigate and get to know if there exist any relationship between the corporate governance practiced by insurance companies in Kenya and their financial performance. The study specifically investigated whether the companies’ board size, number of sub-committees in the board, number of meetings held by the board, CEO duality number of dependent and independent directors had any relationship with the financial performance of the companies’ financial performance. Return on Assets (ROA) was used to measure the performance of firms. Descriptive research design was employed to carry out the study. The population included all the insurance Companies, which were operating as at December 2016. The study made use of secondary data from the AKI and IRA annual reports for period 2012 to 2016 both years included. Data was collected from 42 insurance firms where a multiple linear regression model was used to do the analysis. The study revealed that there exist a weak correlation between the practices of corporate governance that were under study and the financial performance of the companies. The study revealed that the number of sub-committee members of the board as well as the number of dependent directors positively affect the financial performance of insurance companies. However, the number of board meetings as well as the size of the board were found to negatively affect the financial performance. From these findings the study recommended that, in order for the insurance companies to perform optimally, they must increase the number independent directors and ensure they have enough sub committees in the board. The companies should also consider reducing the size of the board since it has been revealed that financial performance is immensely affected by large board sizes.