The Impact of Corporate Governance on the Insurance Firm’s Performance in Bahrain

Abstract

The importance of responsibility, accountability, transparency and fairness are raising the issues of their effect on the performance of the firm and the managers as well. This is closely related to the agency problem because corporate governance mechanisms intend to induce managers to act according to the best interest of the shareholders, which is by maximizing the firm's value and ultimately reducing agency costs. This study is a contribution to other studies conducted to examine the impact of corporate governance mechanisms on firm's performance of the insurance industry in Bahrain, understand how to minimize the agency costs effectively and design the appropriate organizational structure. Also, to distinguish between good and bad corporate governance which is a crucial step in building the market's confidence and attracting positive investment flows to the institution and the economy. E-views program has been used to regress and the method the Pooled data. Five insurance companies listed in BSE have been selected as a sample for this study for the period of 2005-2010. Therefore, the total panel of observations is 30. The research concludes that there is no statistically significant impact of corporate governance expressed by CEO status, ownership concentration, the number of employees, industry performance, and number of shares traded on firm's performance in the insurance industry expressed by the dependent variable -return on equity (ROE). On the other hand board size, firm size, number of block-holders found to have statistically significant impact on firm's performance in the insurance industry expressed by the dependent variable -return on equity (ROE). This result, confirms the importance of good governance structure on the firm and the whole economy in the long run. The researcher suggests that every insurance firm should properly define corporate governance and its mechanisms and implement them effectively in order to reach the firm's long-term goals, build stakeholders' confidence and generate positive investment flows. The recent financial crisis has had enormous impacts on the economy, leading to major problems in insurance companies. Therefore, an insurance company should focus on good corporate governance that will build a stable foundation for recovering from this crisis. Regarding future line of research, efforts should be put at increasing the sample size, the corporate governance variables, and the time frame in order to have more accurate and reliable results. More importantly, the empirical literature indicates a sample selection bias in favor of very big firms. It is hereby suggested that attention should be devoted to the study of small-and

The Effect of Board of Directors Characteristics, Audit Committee Characteristics and Executive Committee Characteristics on Firm Performance in Oman: An Empirical Study

“…Thus, hypothesis H1b is supported. This finding is consistent with previous studies that found a positive relationship between board size and Tobin`s Q either in developed countries such as Khanchel, 2007;Larmou & Vafeas, 2010;Premuroso & Bhattacharya, 2007;Sueyoshi et al, 2010 or in developing countries like Kang and Kim (2011), Khan and Javid (2011, Kyereboah-Coleman (2007, Kyereboah-Coleman andBiekpe (2006), Ll, Kankpang andOkonkwo (2012), Najjar (2012), Obiyo andLenee (2011), Swamy (2011), Uadiale (2010) and Yasser, Entebang and Mansor (2011). One probable clarification for the positive significant association between board size and Tobin`s is that this result is supported by resource dependence theory, which postulates that the board has to be more strict when it comes to monitoring of management to ensure minimal financial fraud.…”

Corporate Governance and Firm Performance: Evidence from Saudi Arabia

“…The results show that board size has a significant negative impact on the performance of both sizes of firm. In line with this study Najjar (2012) study the impact of corporate governance on the insurance firm's performance in Bahrain for the period from 2005 to 2010. He found that firm size, Board size and number of block-holders have significant impact on insurance firm's performance by comparing them in relation to the return on equity.…”

How corporate governance affect firm value and profitability Evidence from Saudi financial and non-financial listed firms

“…Likewise, Najjar (2012) confirms no statistical impact of CG on firms' financial performance in Bahrain, although Ahmed and Hamdan (2015) suggest an inverse relationship after implementing the 2011 CG reforms in Bahrain. All these studies have focused on examining the relationship between CG and firm financial value (measured mainly by ROA and ROE) rather than market value (proxied usually by Tobin's q).…”