The Effect of Listing on the Profitability of Insurance Companies in Kenya

Abstract

The listing of companies is considered an important step in corporate development for companies in every sector. Listing is thought to bring various benefits to the company that range from stronger brand recognition, greater market share, and better financial performance. This study wasconceptualized to test whether listing actually brought benefits to insurance companies listed in Kenya. The main objective of the study was to assess whether listing had an effect on the ROE of insurance companies. The research design used was event study. An event window of ten years, with five years on either side of listing was used to measure the effect of listing on the ROE of insurance companies. The study included allthe listed insurance companies. The industry ROE was used as a moderating variable to smooth out the effects of market forces during listing, since the event windows for the companies were all not concurrent. The study found that listing had mixed results for different companies, with some having improved ROE, and others posting lower ROE. The study concluded that listing has a positive effect on the ROE of the insurance sector, which had a Cumulative Average Abnormal Return of 0.25 ROE, but did not confer any universal advantages on all insurance companies. The study therefore recommends that an improved ROE, while achievable, should not be the major driver for listing for insurance companies.