FIRMS CHARACTERISTICS AND FINANCIAL PERFORMANCE OF GENERAL INSURANCE FIRMS IN KENYA

Abstract

Firms characteristic of insurance firms has gained the importance in the corporate finance literature because as intermediaries. However, insurance companies have for the last two decades been reporting poor financial performance. Some of the firms have reported profit warnings, others have collapsed and others have been blacklisted over failure to reduce majority shareholders stake. The general objective of this study was to establish the influence of firm’s characteristic on financial performance of insurance firms in Kenya. The study also sought to find out how firm size, ownership structure, firm age and capital structure influence financial performance of insurance firms in Kenya. The study used a descriptive survey research design. The target population was all the 47 General insurance companies in Kenya. Secondary panel data was obtained from the financial statements of insurance companies in Kenya, company annual reports and IRA reports. The secondary data was quantitative in nature and was analyzed using descriptive as well as inferential statistics. Descriptive statistics included frequency distributions, mean, standard deviation and percentages. Inferential statistics included analysis of variance, correlation analysis and multivariate regression analysis. Data was analyzed by use of statistical software known as STATA (version 14). The study found that among firm characteristics, capital structure has the most significant influence on the financial performance of insurance companies in Kenya, followed by firm age and firm size. The study found that firm size has an inverse influence on the financial performance of insurance companies while firm ownership has no significant influence. In addition, the study found that capital structure and firm age have a positive and significant influence on the financial performance of insurance companies in Kenya. The study established that market share has a significant effect of the relationship between firm characteristics and the financial performance of insurance companies in Kenya. The study recommends that insurance companies should have a high consideration of increasing the company assets. This is because the size of the company is an important factor as it influences its competitive power. Small companies have less power than large ones; hence they may find it difficult to compete with the large firms particularly in highly competitive markets. The study also recommends that managers in insurance companies in Kenya should consider aggressive credit policies to maximize the use of debt in capital spending activity so as to improve the financial performance of their companies An appropriate mix of capital structure should be adopted in order to increase the profitability of firms.

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