Nyamai, Jonathan SilaJagongo, Ambrose2026-04-152026-04-152026-03Nyamai, J. S., & Jagongo, A. (2026). Firm Characteristics and Financial Stability in The Insurance Sector: A Critical Review of Literature. Asian Journal of Economics, Business and Accounting, 26(3), 117–129. https://doi.org/10.9734/ajeba/2026/v26i32200DOI: https://doi.org/10.9734/ajeba/2026/v26i32200https://ir-library.ku.ac.ke/handle/123456789/32936ArticleThis study underscores a systematic review of the extant literature examining the relationship between firm characteristics and financial stability. The review was theoretically anchored in the buffer theory of capital adequacy, efficiency theory, market power theory, and stakeholder theory, which collectively provide complementary perspectives on how internal firm attributes influence resilience and risk exposure. Adopting a systematic literature review methodology, the study synthesised empirical and conceptual contributions addressing the nexus between firm-specific factors and financial stability outcomes. The findings indicate that a significant relationship has consistently been identified between firm size and financial stability. Larger firms are frequently associated with greater diversification opportunities, improved access to capital markets, and enhanced capacity to absorb shocks, thereby strengthening their stability profiles. Accordingly, firm size emerges as an important determinant of financial resilience within the reviewed literature. Similarly, substantial empirical evidence supports a significant association between capital adequacy and financial stability. In line with the buffer theory, higher levels of capital serve as a protective cushion against unexpected losses, reducing insolvency risk and enhancing institutional soundness. The capital position of an institution is therefore widely regarded as fundamental to its long-term stability. With respect to liquidity, the literature also establishes a significant relationship with financial stability. Liquidity, reflected in the availability of cash and near-cash assets to meet short-term obligations, plays a critical role in mitigating funding risk and maintaining operational continuity. Firms with stronger liquidity positions are generally better equipped to withstand adverse financial conditions. Finally, the review identifies a significant association between operational efficiency and financial stability. Efficient resource allocation, cost management, and productivity improvements contribute to enhanced profitability and reduced vulnerability to external shocks. Collectively, these findings underscore the multidimensional nature of financial stability and highlight the importance of firm-specific characteristics in shaping sustainable financial performance.enArticle