Absorptive Capacity and Performance of Insurance Companies in Nairobi City County, Kenya

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Kinyua, Jeremiah Kamau
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Kenyatta University
The insurance companies constitute a fundamental building block of the global financial system that provides opportunities for hedging against an assortment of risks and as well serve as institutional investors thus promoting sustainability and growth of national economies. Despite the significant role played by the insurance industry in supporting the national economy, there has been a notable decrease in insurance penetration trend. Similarly, the insurance industry has registered an increase in the number of complaints lodged by customers in relation to delayed settlement, erroneous deductions, and unsatisfactory offers. This study therefore sought to investigate the effect of absorptive capacity on performance of insurance companies in Nairobi City County, Kenya. In particular, the study sought to establish the effect of acquisition capacity, assimilation capacity, transformation capacity, and exploitation capacity on performance of insurance companies in Nairobi City County, Kenya. Furthermore, the study also sought to establish the mediating and moderating role of organizational agility and organizational learning culture respectively on the relationship between absorptive capacity and organizational performance. The study was grounded on systems theory, dynamic capabilities theory, Denison model of organizational culture, and the balanced scorecard model. Positivism research paradigm and explanatory research design were adopted in this study. The target population of this study comprised of 59 insurance companies operating in Nairobi City County. Cross-sectional data were collected using a semi-structured questionnaire from 216 heads of functional areas in 27 insurance companies which were selected using proportionate stratified random and simple random sampling. Face, construct and content validity of the research instrument were confirmed accordingly. A pilot study was conducted to aid in the statistical test of reliability using Cronbach alpha index of at least 0.7. Administration of the questionnaire was done using drop-and-pick later method. The study had a response rate of 81 percent. Quantitative data were analyzed using descriptive and inferential statistics. Descriptive analysis involved the use of frequency count, percentages, sample mean, sample standard deviation and coefficient of variation. Test of assumptions of linear regression analysis was performed. Linear regression analysis was used to estimate the population parameters and facilitate testing of hypotheses at 95 percent level of confidence. Results of data analysis were presented in tabular form as well as using figures. Qualitative data were analysed using content analysis. The study found out that acquisition capacity, assimilation capacity, transformation capacity and exploitation capacity had positive effect on organizational performance. Similarly, organizational agility was found to partially mediate the effect of absorptive capacity on organizational performance. Furthermore, the findings of the study confirmed that organizational learning culture moderates the effect of absorptive capacity on organizational performance. The financial manager should develop a policy framework that would avail more resources for benchmarking, industrial workshops and seminars, insurance fairs and exhibitions, and productive collaboration with academia. Management of insurance companies should promote practices that enhance optimization of informational resources. The manager in charge of research and development should enact a policy that would strengthen practices that buttress the ability to inspect and monitor events and changes in the business environment.
A Thesis Submitted to the School of Business in Partial Fulfillment of the Requirements for the Award of Degree of Doctor of Philosophy in Business Administration (Strategic Management Option) of Kenyatta University, March 2022
Absorptive Capacity, Performance, Insurance Companies, Nairobi City County, Kenya