Capital Structure, Capital Intensity and Profitability of Insurance Firms Quoted at Nairobi Securities Exchange, Kenya
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Date
2024-10
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Kenyatta University
Abstract
The profitability of insurance firms has been unstable during the preceding ten
years, mostly due to the insurance industry's bad investment and financing
choices. Despite widespread agreement that choosing a financing framework is a
major component in determining financial success, there is a lack of empirical
research on the topic, especially in the insurance industry. The study's guiding
research team set out to compare the financial health of insurance firms trading on
Kenya's stock market based on characteristics related to their funding
arrangements. Several factors were considered in order to arrive at an evaluation
of the specified insurance firms' financial performance. Various forms of finance,
including short-term and long-term loans, as well as internal and external funds,
were taken into account. In this specific context, the study set out to assess how
the degree of capital intensity affects the relationship between the financial
framework and economic performance. The ideas of financial structure, agency
theory, and Modigliani and Miller's pecking order theory formed the basis of the
research. The inquiry was grounded on these ideas, which provided the empirical
basis. The study used an explanatory research design in line with the principles of
positivist research approach. The goal of this inquiry was to examine six separate
insurance firms. From 2012 through 2019, a total of eight years, all of these
businesses were traded on the national stock exchange. Using a checklist for
systematic reviews, we combed through secondary materials that may be useful
for our investigation. Data analysis made use of many statistical methodologies,
including descriptive statistics, panel regression analysis, and Pearson correlation.
To identify the issues with the data, many diagnostic procedures were performed.
Among these tests were the following: the normality test (Shapiro-Wilk), the
stationarity test (Hausman), the serial correlation test (Woollard), the
heteroscedasticity test (Breusch-Pagan/Cook-Welsberg), the panel unit root test
(Levin-Lin-Chu), and the multicollinearity test (pairwise correlation analysis).
Data analysis allows one to conclude that long-term loans significantly hinder
one's ability to become financially successful. In addition, the effect is substantial
from a statistical standpoint (p < 0.05). Statistical significance (p < 0.05) shows
that short-term loans, internal and external funding, and both have a significant
impact on economic performance. Since the p-value was greater than 0.05, it was
concluded that capital intensity did not have a statistically significant influence on
the link between financing structure and financial performance. The study's
results showed that long-term loans were only slightly associated with better
financial outcomes. However, there was a far stronger correlation between
internal and external finance and financial performance. Additionally, financial
performance improved in tandem with the amount of short-term loans. It turned
out that this was true. Finally, for insurance businesses registered on the national
stock market in Kenya, the amount of capital investment did not significantly
affect the connection between the financing structure and economic performance
(p > 0.05). It was ultimately decided upon that. According to the report, insurance
businesses that are Quoted on the national stock market might streamline their
funding and boost their financial performance by renegotiating their loans
Description
A Research Thesis Submitted to the School of Economics in Partial Fulfillment of the Requirements for the Award of the Degree of Master of Economics of Kenyatta University October, 2024
Supervisor:
1.Mungai john
2.Job Omagwa