Effect of Corporate Governance Practices on the Market Value of Listed Insurance Firms in Kenya

Abstract

The study‟s main objective was to establish the practices of corporate governance‟s effect on the market value of insurance firms listed in Kenya. The research study aimed to establish to what extend board diversity, size and independence of the board and the regularity of holding meetings affect insurance firms market value. Quantitative data was collected and then analyzed by descriptive statistics. Quantitative data was gathered through reviewing research Insurance firms‟ financial statements. There were 6 listed Insurance firms in the NSE as per data from the Bourse website; in which the collection of data took place from all and the period of the study was 2011 to 2016. Data analysis was then done using regression and descriptive statistics, presentation was done in charts and tables. The research generally found out that, practices of corporate governance did have impacts on the aforementioned insurance firms‟ market values, it established that the beta coefficient of board diversity is -0.567. Thus, increasing the female proportion of the directors in the board decreases Tobin‟s Q by 56.7%. Therefore, board diversity has a negative statistical significance in predicting and explaining the Market value. the beta coefficient of board independence is -3.822. The p-value (P<0.001) for board independence (BI) at 0.05 significance level showing that, “board independence is statistically significant and can be applied in predicting and explaining Tobin‟s Q, the market value indicator.” From the results, the beta coefficient of board size is 4.407. Hence, a one-member rise in the size of board results to 4.407 times increase in the Tobin‟s Q and at 5% significance, the board size is statistically positive key, predict and explains the Market value the beta coefficient of board meetings is 1.64. Thus, an increment in the board meeting numbers increases Tobin‟s Q by 1.64 times and therefore board meetings variable is statistically significant, predicts and explains the market value. To reduce chances of conflicts among different stakeholders the study recommends that insurance companies should implement fully the corporate governance practices, the requirements for listing should be fair to the firms and insurance regulatory authority should make it compulsory for any registered insurance company to make public the statement of corporate governance especially for those firms which are not listed, because the listed firms it is a basic requirement as per the Nairobi Securities Exchange market. The main drawbacks of the study are that insurance firms under study were registered at different times by IRA, the different timings of registration and starting operations can give different values of assets and consequently different earnings after tax and this could lead to different financial measures and thus a cross sectional analysis cannot adequately be carried out for decision making. The study suggests that, corporate governance dimensions in the listed insurance companies be conducted on the corporate governance‟s effects and organizational performance on a specific insurance company.