The Effect of Financial Restructuring on Performance of Insurance Companies in Kenya

Abstract

The corporate world, particularly in the business arena, has remained to be dominated by restructuring. Financial restructuring is a major factor influencing its financial performance. The financial performance of insurance companies in Kenya is continuing to dwindle. The firms have been undertaking corporate restructuring more so financial restructuring. This study sought to determine the effect of financial restructuring on performance of insurance firms listed in Kenya. The study was based on descriptive correlational design. Between 2011 and 2020, insurers that restructured was involved. There were 18 financial restructurings during the period under analysis. A total of nine restructuring deals were considered aggregated 3 by 3 years pre and post financial restructuring. Secondary data from annual financial statements of publicly traded insurers was utilized in this study. The research focused on listed insurers that reorganized their financial structures between 2011 and 2020. Multiple regression, correlation, and descriptive statistics was used to analyze the data. Pearson's correlation coefficient was used to establish the relationship between the variables. The annual panel data was analyzed using an event study method. STATA 13 was used to do the analysis. Anova were used to perform significance testing using f-statistics. The study found that debt restructuring (debt ratio) had a significant negative effect on financial performance with equity restructuring showing a positive and insignificant effect. On the other hand, asset restructuring had a negative significant effect while liquidity had a negative insignificant effect on financial performance. Generally, the findings showed that financial restructuring had an inverse effect on financial performance. The study recommends that insurance firms reduce their debt and fixed assets for improved financial performance. Similar studies are recommended on other factors, in other sectors and on a different period.