Ownership structure, size and financial performance of insurance firms in Kenya

Abstract

Insurance companies in Kenya are vital for economic development through financial security, but they face significant challenges in terms of declining financial performance. This persistent issue undermines their profitability, limits growth opportunities, and raises concerns about their long-term sustainability. The link between ownership structure and financial performance has attracted significant unending debate in the finance literature. This is largely ascribed to the bulk of mixed findings which have largely been documented in a continuum of empirical studies. The main objective of this study is to probe the relationship among ownership structure, size and financial performance of the insurance firms in Kenya. The specific objectives are to: determine the effect of managerial ownership on performance of insurance firms in Kenya; establish the influence of institutional ownership on financial performance of insurance firms in Kenya; examine the effect of foreign ownership on financial performance of insurance firms in Kenya and finally to assess the moderating effect of size on the relationship between ownership structure and financial performance of insurance firms in Kenya. This empirical investigation is anchored on agency, stewardship and stakeholder theories. The study adopted descriptive longitudinal research design and the population of the study comprised of a census of all 56 insurance firms in Kenya. The study relied on secondary data which was gathered using a data collection sheet for the period 2018 to 2022. Ownership structure was measured by managerial, institutional and foreign dimensions; size was represented by total assets; whereas financial performance was operationalized by return on assets. To analyse data, both descriptive and inferential statistics were used. Descriptive statistics in form of mean, standard deviation, skewness and kurtosis was computed. The relationship among the variables was estimated using panel regression model. The findings indicated that managerial ownership, institutional ownership and foreign ownership had a negative significant influence on financial performance. Furthermore, size synergistically moderated the relationship between ownership structure and financial performance. The study's recommendations highlight implications for theory, policy, and management practice, underscoring how ownership structures like managerial, institutional, and foreign ownership impact financial performance, contrary to traditional views. Policy makers, including regulators like the IRA, can use these findings to refine governance frameworks tailored to diverse firm sizes and financial performances in the insurance sector. Furthermore, the study underscores management's role in optimizing ownership compositions, thereby enhancing corporate governance practices. For future research, exploring cross-sectional datasets and diverse sectors beyond insurance in different regulatory environments could offer deeper insights into ownership dynamics and their impacts on financial performance.