EFFECTS OF CORPORATE GOVERNANCE ON ORGANIZATIONAL FINANCIAL PERFORMANCE IN KENYA: A CASE OF INSURANCE COMPANIES LISTED IN THE NAIROBI SECURITES EXCHANGE (NSE)

Abstract

The purpose of this study was to find out the effect of corporate governance on financial performance of insurance companies listed in the Nairobi Securities Exchange (NSE). The study was guided by four objectives – board size, board independence, board gender diversity and CEO duality – to establish their effect on the performance of insurance companies listed in the NSE. Through the use of descriptive research design, the study targeted all the six insurance companies listed by NSE as at December 2014. The sample size was the secondary data published from audited annual reports and websites for four insurance companies – Pan African Insurance Holding Ltd, Jubilee Holdings Ltd, Kenya Re-Insurance Corporation Ltd and CIC Insurance Group Ltd – for the year 2008 to 2014.The data was analyzed with the help of Eviews and was presented into tables. Regression analysis was used to establish the relationship between financial performance and corporate governance for insurance firms listed in the NSE. The study revealed that all the companies had zero CEO duality in which case the CEO’s and chairperson of the BOD were different persons. The study further revealed that there was an inverse relationship between ROA and company board size. The findings also revealed that there was a positive relationship between ROA and board independence. There was also a positive relationship between ROA and gender diversity of the board. The study recommends that the board size, gender diversity and composition of the insurance companies should be considered since it affects the financial performance of the organization. It also recommends that insurance companies should review their policies regarding corporate governance. Another recommendation is that the boards need to be comprised of well-educated people since they are actively involved in shaping the firms strategy. Finally, financial monitoring should be done thoroughly by the board.