The effect of corporate social responsibility on financial performance of insurance companies in Kenya

Abstract

The Study attempted to address the question whether Corporate Social Responsibility (CSR) can be linked to financial performance of Insurance companies in Kenya .Using descriptive research design and inferential analysis; the study tested the sign of the relationship between Corporate Social Responsibility and financial performance in insurance companies. The analysis also factored in other determinants of financial performance including; rate of inflation, 91 Day Treasury bill, and interest on Deposit. The study used data covering a five year period from 2009 to 2013. The target population consisted of all the 51 registered insurance companies in Kenya as at December 2013. Companies that ceased operation in between or were registered in between the 5 year period were omitted from the study. Also omitted from the study were companies who were not consistent in their CSR for all the 5 years. To be considered for the study, a company had to engage in CSR for all each of the five year period. Therefore only 20 companies were finally considered as shown in appendix five. Analysis was based on descriptive statistics using secondary data that was obtained from Insurance Regulatory Authority and from the financial statements of the individual companies. Regression analysis was used to find out whether there is a relationship between the Variables. Regression model was used to find out whether the relationship between the variables to be measured was significant or not. For Corporate social responsibility investment, the study concludes it was negatively correlated with financial performance of insurance companies. This study also concludes that there is a negative relationship between financial performance of insurance companies as measured by ROA and the rate of inflation. The study further concludes that the 91 Day Treasury bill was however significant in explaining the changes in the financial performance of insurance companies. The study also concludes that there was also a negative relationship between financial performance of insurance companies and Interest on deposit. The study recommends that insurance companies diversify their investment portfolios in order to diversity these risks. The study further recommends that insurance companies increase their allocations for investments in CSR. This is because there is no single organization that exists in a vacuum but instead, they all exist in a society.