Effect of Corporate Governance Structures on Growth of Insurance Firms in Kenya

Abstract

Corporate governance is not the ultimate goal of a firm but a way to support financial stability, economic efficiency and sustainable growth. Despite existence of tight regulatory framework within the insurance industry in Kenya, some insurance companies have either stagnated in growth or collapsed. Some insurance firms have been faced by scandals that are avoidable with good corporate governance structures. This research sought to bring out the effect of corporate governance structures on the growth among insurance firms in Kenya. The research established the effect of board size, ownership concentration and board independence on growth among insurance companies. Underwriting risk, liquidity and solvency margin were used as the control variables in the model. Descriptive research design was used. The target population was the 54 insurance firms in Kenya. There are 54 insurance companies in Kenya but only 49 provided complete data set. Research variables data were derived from audited company's annual financial statements from 2016 to 2020 for all 49 companies making 245 observations. Regression and correlation analysis were used to test the study hypotheses by establishing the relationship between corporate governance structures and growth. The study found that ownership concentration (β=0.218, p=0.000), board independence (β=0.211, p=0.000) and solvency margin (β=0.156, p=0.001) had a positive and significant relationship with growth among insurance firms. Underwriting risk has a significant negative effect on growth (β=-0.221, p=0.000) while board size (β=0.001, p=0.538) and liquidity (β=0.001, p=0.834) were not statistically significant. The results also indicated R2 of 0.234 which implied that the selected independent variables contributed 23.4% to variations in growth. The study recommends that owners of insurance firms should strive to keep a significant shareholding as this contributes to growth of the firms. Policy makers such as IRA should also come with policies and guidelines of the percentage of shares that can be held by one family. The study also recommends that IRA, which is the regulator, should make it mandatory for all insurance firms to have board independence.