Effect of Corporate Governance on Financial Perfomance of Insurance Companies in Kenya
Abstract
This study looked at the relationship between corporate governance and financial
performance of insurance companies in Kenya. Good corporate governance enhances
ethical behavior of those that yield corporate power. Specifically, this study examined
Board diversity, Board meetings, Board committee, Board size, and Board
independence and their relationship with financial performance, as measured by
return on assets, of insurance companies in Kenya. The study comprised of all 43
insurance companies licensed by the Insurance Regulatory Authority during the
period 2012 to 2015. The study employed multiple linear regression analysis. The
data collected was from secondary sources as it was obtained from the firm’s financial
reports. The data was cleaned for completeness, coded and analyzed by the use of
Statistical Package for Social Sciences (SPSS) for analysis. The results also found that
there exists a weak negative correlation between return on assets and board size with
return on assets and board diversity was found to be strongly positive. The board
frequency of meetings was found to have a minimal significant influence on the
insurance company’s financial performance with board diversity, board committee
and board committee found to be statistically significant. The overall multiple linear
regression models was tested using ANOVA and the resulting F-stat indicated that the
model was significant at 95% significance level.The study recommends that
stakeholders in Kenyan insurance industry should take into account the board
diversity, board committees and board meetings when forming board of directors as
they are significant determinants of financial performance. That is the board should be
organized in a way that will help the insurance companies improve their overall
performance. According to this study board independence and board size should not
be prioritized as they are insignificant when it comes to determining listed firms’
financial performance.The variables considered in the study explained 52% and 66%
of the variation in firm financial performance across the four study years implying
that there are other important factors not included in the model and therefore the study
recommends that the management should put in to consideration such factors in order
to enhance the effectiveness of corporate governance index. The study also
recommends that policy makers should set an index on corporate governance to act as
a reference for all insurance companies so that the efficiency of corporate governance
can be enhanced
Publisher
University Of Nairobi
Rights
Attribution-NonCommercial-NoDerivs 3.0 United StatesUsage Rights
http://creativecommons.org/licenses/by-nc-nd/3.0/us/Collections
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