Cash Flow Management and Financial Performance of Insurance Companies in Kenya
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Date
2023
Authors
Obure, Lilian Atieno
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Activities in cash flow management should boost a company's financial success. However, this hasn’t been the case with some insurance firms in Kenya whereby losses have been recorded. It is due to this preceding declining and erratic fluctuation in financial performance that the researcher is seeking to determine the effect that cash flow management has on insurance firm’s performance in the Kenyan market. The main objectives were to evaluate how operating cash flows affected the financial performance of the insurance firms in Kenya, determine how investing cash flows affected the financial performance of the insurance firms in Kenya, and determine how financing cash flows affected the financial performance of the insurance firms in Kenya. Free Cash Flow Theory, Baumol Deterministic Theory of Cash Management, Agency Cost Theory, and Financial Life Cycle Theory served as the foundation for this research. This research employed secondary data which was collected with the aid of a template for secondary data aggregation and employed a descriptive research design with independent and dependent variables. For a five-year period, 49 insurance companies listed by IRA were the source of panel data for the study for the period 2016 to 2020. Descriptive statistics like mean and variance were used in the research. A panel regression model was utilized to analyse the effect of management of cash flow (an independent variable) on financial performance (dependent variables). Additionally, the analysis carried out four diagnostic tests to evaluate the findings' robustness: the tests for multicollinearity, heteroskedasticity, normality, and stationarity. Following the preliminary tests, data was analysed and a suitable model was fitted. The research discovered that investment cash flows has a negligible effect the financial performance of the insurance firms in Kenya. Additionally, the research revealed that operating cash flows have a favourable and substantial effect on the financial performance of the insurance firms in Kenya. This research also identified that financing capital flows has a significantly positive effect on the financial performance of Kenyan firms in the insurance business. This research recommends that insurance companies broaden the scope of their routine business operations, including their revenue-generating activities. This implies that insurance companies should increase their number of products and services that their offer to their customers. This will help them increase the number of transactions on daily basis and hence lead to an increase in revenue. In addition, insurance companies should use information at their disposal to make decisions on the capital structure in their organizations. This is because while internal funding may be the most preferable, the use of debt can help an insurance company to finance activities and investments that it would not have been able to finance without debt.
Description
A Research Project Submitted in Partial Fulfilment for the Award of Business Administration Degree (Finance Option) to the School of Business, Economics and Tourism, Kenyatta University, 2023.
Keywords
Cash Flow Management, Financial Performance, Insurance Companies, Kenya