The Relationship between Corporate Governance and Performance of Insurance Companies in Kenya
DOI:
https://doi.org/10.53819/81018102t2009Abstract
The environment in which insurance companies operate has been fraught with various corporate governance challenges that have hindered their progress. Thus, a deliberate effort has to be made to avoid future corporate mismanagement and company failures given the important role insurance plays in the economy of Kenya, especially towards the development of the small and large scale firms through ensuring financial security. This study sought to establish the relationship between corporate governance and performance of insurance companies in Kenya. This study was anchored on Agency theory. Positivism philosophical foundation was adopted with a cross-sectional survey. The study population comprised of 52 insurance companies in Kenya licensed by the Insurance Regulatory Authority (IRA) as at December 2017. The insurance companies constituted the unit of analysis. The respondents were the Senior Managers and the general employees. This study utilized primary data collected using questionnaires. The influence of corporate governance was evaluated based on dimensions of three constructs namely transparency, board responsibility and ownership structure. The results indicated that corporate governance was positively and significantly associated to performance. This was an indication that corporate governance portrayed a strong connection with performance. The null hypothesis of the study was that corporate governance has no significant relationship with performance of insurance companies in Kenya was rejected. The study concluded that corporate governance influences performance. Subsequently, insurance firms need to maintain good corporate governance practices by having appropriate board structures and composition that takes into consideration diversification of expertise. The study recommends that policy and decision makers need to ensure that appropriate corporate governance mechanisms are implemented in insurance companies. This constructs of corporate governance play a key role in effective governance of insurance companies. Policy and decision makers can use the findings in developing codes of governance that govern the practice.
Keywords: Corporate Governance, Transparency, Board Responsibility, Ownership Structure, Performance, Insurance Companies & Kenya.
References
Akshita A., & Chandan, S. (2016). Corporate governance and firm performance in developing countries: Evidence from India. Corporate Governance, 16(2), 420- 436. doi:10.1108/CG-01-2016-0018
Amba, S.M. (2014). Corporate governance and firm’s performance, journal of academic and business ethics. Bahrain: New York Institute of Technology.
Association of Kenya Insurers (2019). Insurance Industry Annual Report 2019, Nairobi. Kenya.
Ayako, A., Kungu, G., & Githui, T. (2015). Determinants of the Performance of Firms
Azeez, A. A. (2015). Corporate governance and firm performance: evidence from Sri Lanka. Journal of Finance, 3(1), 180-189. https://doi.org/10.15640/jfbm.v3n1a16
Babbie, E. (2004). Laud Humphreys and research ethics. International journal of sociology and social policy. https://doi.org/10.1108/01443330410790849
Barako, D. G. and Tower, G. (2007). Corporate Governance and bank performance: Does Ownership matter? Evidence from the Kenyan banking sector, Corporate Ownership and Control Journal, 4, (2), pp. 23-50. https://doi.org/10.22495/cocv4i2p13
Chen, J., Goergen, M., Leung, W. S., & Song, W. (2019). CEO and director compensation, CEO turnover and institutional investors: Is there cronyism in the UK?. Journal of Banking & Finance. 2(2), 33. https://doi.org/10.1016/j.jbankfin.2019.03.019
Davidson Iii, W. N., Sakr, S., & Wang, H. (2016). Trends in Corporate Governance. A Handbook of Corporate Governance and Social Responsibility, 135.
Delima, V., & Ragel, V. R. (2017). Impact of corporate governance on performance. International Journal of Engineering Research and General Science, 5(5).
Ekadah, J. W., & Mboya, J. K. (2015). Effect of board gender diversity on the performance of commercial banks in Kenya.
Ferguson, R. (2008). Word of mouth and viral marketing: taking the temperature of the hottest trends in marketing, Journal of Consumer Marketing, Vol. 25 Issue: 3, pp.179-182. https://doi.org/10.1108/07363760810870671
Hawley, J. P., & Williams, A. T. (1996). Corporate governance in the United States: the rise of fiduciary capitalism. School of Economics and Business Administration.
Insurance Regulatory Authority (2019). Annual Insurance Industry Report for the Year ended 31st December 2019.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of financial economics, 3(4), 305-360. https://doi.org/10.1016/0304-405X(76)90026-X
Khan, S. (2011). A Literature Review of Corporate Governance. 2011 International Conference on E-business, Management and Economics IPEDR Vol. 25 (2011) IACSIT Press, Singapore. pp. 1-5
Kimaite, N. (2016). Corporate Governance and Performance of Commercial Banks in Uganda: A Case of Stanbic Bank Uganda Limited. Uganda Technology and Management University (UTAMU).
Kiratu, M. K., & Moronge, M. (2016). Influence of Corporate Governance on Performance in Kenya. A case of Agricultural State Corporations. Journal of Management, 2(2), 33.
Kothari, C. K. (2013). Research methodology: Methods and techniques. New Age International Publishers: New Delhi.
Lasisi, T. I. (2017). The Relationship between Corporate Governance and Performance in Nigerian Companies (Doctoral dissertation). Retrieved from http://www.waldenu.edu/
Luyima, A. N. (2015). Corporate governance and performance of insurance companies in Kenya (Doctoral dissertation, University of Nairobi).
Mallin, C.A. (2007). Corporate Governance, (4th ed), United Kingdom: Oxford University Press.
Mang’unyi, E. (2011). Ownership Structure and Corporate Governance and its Effects on Performance: A case of selected Banks in Kenya. International Journal of Business Administration. 2 (3). https://doi.org/10.5430/ijba.v2n3p2
Mohammed, F. (2011). Impact of Corporate Governance on Banking Sector Performance in Nigeria, in International Journal of Economic Development Research and Investment, Vol.2
Mokaya, M., & Jagongo, A. (2015). The effect of ownership structure on the financial performance of firms listed at the Nairobi securities exchange, 4(11), 1–17.
Mugenda, O.M., & Mugenda A.G. (2008). Research Methods: Quantitative and Qualitative Approaches. Nairobi: Acts press.
Muriuki, J. W., Cheruiyot, T. & Komen, J. (2017). Effect of Conflict Management Strategies on the Relationship between Corporate Governance and Performance in State Corporations in Kenya. Science Journal of Business and Management. Vol. 5, No. 4, 2017, pp. 158-168.
Mwangi, A. K. G. (2013). A survey of Corporate Governance Practices Among Insurance Companies in Kenya. University of Nairobi Press – Nairobi.
Mwanja, B. K Marangu, W. N., Wanjere, D. M., & Thuo K. J., (2014). Effect of Corporate Governance on Performance of Savings and Credit Co-operative Societies in Kakamega County. European Journal of Business and Management, 6.
Mwanzia, B. M. (2010). Corporate Governance Practices in Developing Countries The Case for Kenya, International Journal of Business Administration, 2(1), 14. https://doi.org/10.5430/ijba.v2n1p14
Naciti, V. (2019). Corporate governance and board of directors: The effect of a board composition on firm sustainability performance. Journal of Cleaner Production, 237, 117727. https://doi.org/10.1016/j.jclepro.2019.117727
Nyamongo E.M & Temesgen. K. (2012). The effect of governance of performance of commercial Banks in Kenya: a panel study: corporate governance vol. 13 No. 3 236. https://doi.org/10.1108/CG-12-2010-0107
OECD. (2015). Principles of Corporate Governance. Secretary General. https://doi.org/10.1002/bl.30032
Oghoghomeh, T., & Ogbeta, M. (2014). Corporate governance and performance in Nigerian banks. European Journal of Business and Management, 6, 33-45. Retrieved from http://www.sagepub.in/journals/Journal202340
Padgett, C. (2012). Corporate Governance: Theory and Practice. London, Palgrave Macmillan. https://doi.org/10.1007/978-0-230-35711-2
Paniagua, J., Rivelles, R., & Sapena, J. (2018). Corporate governance and financial performance: The role of ownership and board structure. Journal of Business Research, 89, 229-234. https://doi.org/10.1016/j.jbusres.2018.01.060
Ramírez, Y., & Tejada, Á. (2018). Corporate governance of universities: improving transparency and accountability. International Journal of Disclosure and Governance, 15(1), 29-39. https://doi.org/10.1057/s41310-018-0034-2
Shleifer, A., & Vishny, R. W. (2017). A survey of corporate governance. The journal of finance, 52(2), 737-783. https://doi.org/10.1111/j.1540-6261.1997.tb04820.x
Supango, V. T. (2012). Strategic HR Practices in Some Organizations in the Philippines," Philippine Management Review, Vol. 19, 2012.
Swiss Re (2020). Sustained insurance sector growth in 2020 largely based on demand from emerging markets; Global insurance review and outlook for 2019/20.
Ullah, Z., Rehman, A. & Waheed, A. (2016). The Impact of Corporate Accountability & Transparency on the Performance of Manufacturing Firms Listed on KSE. Available at SSRN: https://ssrn.com/abstract=2756977 or http://dx.doi.org/10.2139/ssrn.2756977
Utama, C. A., Utama, S., & Amarullah, F. (2017). Corporate governance and ownership structure: Indonesia evidence. Corporate Governance: The international journal of business in society. https://doi.org/10.1108/CG-12-2015-0171
Van Wart, M. (2012). Dynamics of leadership in public service: Theory and practice (2nded.). NY:M:E: Sharpe
Waithaka S.M., Gakure, R., & Wanjau, K. (2012). Effects of Board Characteristics on Microfinance Institutions Social Performance in Kenya.
Wanyama & Olweny 2013, Effects of Corporate Governance on Financial Performance of Listed Insurance Firms in Kenya. Public Policy and Administration Research Journal. 4, (2), pp. 23-50.
Wet, J. H. (2012). Executive Compensation and the EVA & MUA Performance of South Africa listed companies, Southern Africa’s Business Review L6 No. 3 16.
Wheelen, T. L. & Hunger, J. D. (2002). Corporate governance and social responsibility’ [Online] available: http://vig.prenhall.com/catalog/uploads/Wheelan-Hunger Ch2.ppt, (16).
Widiatmika, P. H., & Darma, G. S. (2018). Good Corporate Governance, Job Motivation, Organization Culture Which Impact Company Financial Performance. Journal Management Bisnis, 15(3), 82-99.
Zaman R., Arslan, M. &, Siddiqui, M. A. (2014). Corporate Governance and Firm Performance: The Role of Transparency & Disclosure in Banking Sector of Pakistan, International Letters of Social and Humanistic Sciences; 43, pp 152-16.
Akshita A., & Chandan, S. (2016). Corporate governance and firm performance in developing countries: Evidence from India. Corporate Governance, 16(2), 420- 436. doi:10.1108/CG-01-2016-0018
