The Relationship Between Corporate Governance and Financial Performance of Insurance Companies in Kenya

Abstract

The study investigates into the relationship between corporate governance and financial performance of insurance companies. Corporate governance has been believed to be one of the factors that influence the financial performance of insurance companies. The study comprised of 41 insurance companies licensed by IRA during the period of study 2006 to 2009. The study found out that there is a significant influence of board size, nonexecutive directorships, insider shareholding, board meeting frequency and CEO-Chairman duality on the financial performance of the insurance companies. The study found out that there is a negative relationship between the Board size and nonexecutive directorships with ROA whereas Insider shareholding and board meeting frequency had a significant positive relationship with ROA. On the other hand, board size, nonexecutive directorships, insider shareholding and board meeting frequency had a positive relationship with ROE. The study recommends that the regulator should draw minimal requirements for corporate governance in the insurance industry to serve as guideline for the insurance firms; this will improve the financial performance of these firms.