Corporate Governance and Financial Performance of Insurance Companies in Nepal

Abstract

This paper aims to examine the effect of corporate governance practice on financial performance of insurance companies in Nepal. The study used board size, number of board meetings, CEO duality, Audit committee are the explanatory variables for corporate governance. Firm size and age of the firms are considered as control variables. The dependent variable performance has been measured using Return on Assets (ROA) and return on equity ROE. The study employed descriptive cum causal relational research design. All the 23 listed insurance companies are considered as the population of the study. Only 18 insurance companies (13 non-life and 5 life) is taken as sample based on availability of data representing 78.26 % sample. The secondary data of profitability has been extracted from annual report of the company. The explanatory variables related to corporate governance has been collected through structured survey questionnaire. The study period accounts for the eight years from 2011 to 2018 with 141 firm year observations. Data has been analyzed using a multiple linear regression model.
 The study concludes that there exists strong relationship between the corporate governance practices and firms’ performance. The board meeting and audit committee were found to positively affect the financial performance of insurance companies. Board size is found to be negative but not significant. The study also concludes CEO duality has the negative impact on the performance of the insurance company. Firm with large in size with high board meeting tend to perform well. Age of the company also positively influenced on the financial performance of insurance companies in Nepal.

Do Publicly Listed Insurance Firms in Saudi Arabia Have Strong Corporate Governance?

“…In contrast, ROA and ASize(5) underestimate RE (−6.3918) and relate negatively at 10% significance, thus rejecting Hypothesis 4. This supports the findings of Maharjan (2019), Fadun (2013), andFekadu (2015). This means that below ASize(4), there is no effect on insurance performance, while there is a positive effect on insurance performance when there are four members.…”

“…The audit committee's role is to enhance firm value. Maharjan (2019), Fadun (2013), andFekadu (2015) all found a positive relationship between audit committee size and financial performance. In contrast, Datta (2018), Ghabayen (2012), Yemane et al (2015), and found that audit committee size does not affect firm performance.…”

“…In contrast, in a study on non-financial firms in the Saudi market, Ghabayen (2012) found that board composition had a significant negative relationship with firm performance. Similarly, in Nepal, looking at 2011 to 2018, Maharjan (2019) found that board size and CEO duality were negatively associated with financial performance. Meanwhile, Shaheen and Jaradat (2019) found that, in Palestine, firms that hold more frequent board meetings and have CEO duality achieved better performance.…”

“…Although few studies have been conducted on the insurance industry in developed economies, extant studies, such as Elamer et al (2018) in the UK and Eckles et al (2011) in the US, have examined the relationship between corporate governance and firm performance. However, there are several studies on the insurance industry in developing economies; for example, in Nigeria (Ajemunigbohun et al 2020;Akeem et al 2014;Azutoru et al 2017;Fadun 2013;Fodio et al 2013;Gugong et al 2014), Ethiopia (Fekadu 2015;Yemane et al 2015), Kenya (Wanyama and Olweny 2013), Ghana (Tornyeva and Wereko 2012), Nepal (Maharjan 2019), Palestine (Shaheen and Jaradat 2019), India (Chaudhary 2014), Taiwan (Huang et al 2007), Sri Lanka (Panditharathna 2016), Bangladesh (Datta 2018), Pakistan (Arif 2019), and Bahrain (Najjar 2012).…”

Impact of National Election-2017/18 on Corporate Performance: An Analysis of Insurance Companies in Nepal

“…For this, a convenient sampling technique has been used for the selection of the sample, and data were analyzed using a multiple linear regression model. Similarly, Maharjan (2019), andGhimire (2020) examine the relationship between corporate governance and the performance of the insurance companies in Nepal with having the effect of corporate governance practice on the financial performance of insurance companies in Nepal.…”