A survey of capital budgeting practices for insurance companies in Kenya

Abstract

The effect of the capital budgeting decision-making process will result in the generation of more capital needed for company operations in the form of retained earnings. This consequently lead to the pouring in of additional capital investments from new investors because a positive rating gives investors confidence in the company’s operations and ability to pay debts and claims in case of insurance companies. It’s difficult for companies to make proper planning during the capital budgeting process if the cost of capital is low or incapable of meeting its required financial budget such as acquiring a new business. This study therefore sought to survey the relationship between Capital Budgeting practices of insurance companies in Kenya. The study used descriptive study design. The population of interest of the study was one employee selected from each of the 42 insurance companies. Primary data was collected using structured questionnaires which were the main data collection instruments. The questionnaires had both close-ended and open ended questions. Data was analysed quantitatively and descriptive statistics such as mean scores, frequencies and percentages were used to analyse the data. Data was then presented using frequency tables. From the study, the researcher found that Capital Budgeting Techniques enhances performance in insurance companies in Kenya. This is because from the study, capital budgeting techniques places a high importance on the budget-to-actual comparison for performance evaluation purposes, being a standard for performance they are used to evaluate managerial performance and they are used by insurance companies in Kenya for setting goals and evaluating performance. The researcher therefore recommends that all the insurance companies should fully embrace capital budgeting so as to increase efficiency and effectiveness in their organizations