CORPORATE GOVERNANCE ON FINANCIAL PERFORMANCE OF INSURANCE INDUSTRY

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Gardachew Worku Fekadu

DOI:10.22495/cocv13i1c10p7

Abstract

The role of corporate governance in financial institutions differs from that of non- financial institutions for the discretionary power of the board of directors would be limited especially in regulated financial systems where financial institutions are obliged to function through legislative and prescriptive procedures, policies, rules and regulations. This study, therefore, was aimed at examining the impact of corporate governance on the performance of closely regulated Ethiopian insurance Industry. The study employed explanatory research design with an econometric panel data of 10 Insurance companies that covers the period 2007 to 2014. Board size, board independence and board diversity have negative and insignificant effect on the performance of insurance companies while size and independence of audit committee and frequency of board meetings have positive but insignificant effect on the performance of insurance companies in Ethiopia. Thus it could be concluded that all corporate governance mechanisms have insignificant effect on the performance of insurance companies measured by return on asset. This vividly affirms that the role of board of directors in closely regulated financial sector is dismal and insignificant for they have limited discretionary power to exercise as board of directors. Thus it would be recommendable if the regulatory body could relax its prescriptive and stringent policies and devolve its power to board of directors without endangering the viability of insurance companies.

Keywords: Corporate Governance, Insurance Companies, Board of Directors, Ethiopia

How to cite this paper: Fekadu, G.W. (2015). Corporate governance on financial performance of insurance industry. Corporate Ownership & Control, 13(1-10), 1201-1209. http://dx.doi.org/10.22495/cocv13i1c10p7