Original Paper Examining the Financial Distress Condition and Its Determinant Factors: A Study on Selected Insurance Companies in Ethiopia (original) (raw)
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2022
Purpose The motive of this paper is to look at financial distress and its determinants within the case of chosen private insurance companies in Ethiopia. Design/methodology/approach From the whole population of 16 private insurance companies in Ethiopia 9 of them were deliberately chosen as test based on their year of foundation and accessibility of the specified information in audited financial statement for the study period of 2010/2011 -2019/2020 with add up to of 90 observations. In arrange to attain the research objectives the study embraced quantitative strategies of research approaches and applied Altman’s Z-Score EMS model as intermediary for financial distress with its fixed effect estimate to test an arrangement of hypotheses. Findings The study concludes that sampled insurances were within the secure zone (Z >2.6) and profitability, liquidity; capital adequacy ratio and leverage are the major determinants of financial distress of chosen private insurance companies in E...
FIRM SPECIFIC FACTORS THAT DETERMINE INSURANCE COMPANIES' PERFORMANCE IN ETHIOPIA
The performance of any business firm not only plays the role to improve the market value of that specific firm but also leads towards the growth of the whole sector which ultimately leads towards the overall prosperity of the economy. Assessing the determinants of the performance of organizations has gained importance in the corporate finance literature; however, in the context of insurance sector, it has received little attention particularly in Ethiopia. Accordingly, this study investigated the impact of firm level characteristics (size, leverage, tangibility, Loss ratio (risk), growth in writing premium, liquidity and age) on performance of insurance companies in Ethiopia. Return on total assets (ROA)-a key indicator of insurance company's performance-is used as dependent variable while age of company, size of the company, growth in writing premium, liquidity, leverage and loss ratio are independent variables. The sample includes 9 insurance companies over the period 2005-2010. The audited annual reports (Balance sheet and Profit/Loss account) of insurance companies were obtained from National Bank of Ethiopia (NBE) and insurance companies' annual publication reports. The results of regression analysis reveal that insurers' size, tangibility and leverage are statistically significant and positively related with return on total asset; however, loss ratio (risk) is statistically significant and negatively related with ROA. Thus, insurers' size, Loss ratio (risk), tangibility and leverage are important determinants of performance of insurance companies in Ethiopia. But, growth in writing premium, insurers' age and liquidity have statistically insignificant relationship with ROA.
Determinants of Financial Performance of Insurance Companies in Ethiopia
2019
The insurance sector plays important role in contributing to economic growth, efficient resourceallocation, reduction of transaction costs, creation of liquidity, facilitation of economic of scalein investment, and spread of financial losses. Financial performance is the most importantindicator of good financial management as the objective of financial management is to maximizeorganization’s earnings measured by profitability. This study investigated the determinants offinancial performance of insurance companies in Ethiopia based on Secondary data obtainedfrom financial statement of nine insurance companies for eleven years, 2006 to 2016 statementsand balance sheet of insurance companies from NBE. The Method of Data analysis used in thisstudy is correlation and multiple regression analysis. The findings of the study indicate thatunderwriting risk have statistically significant and negative impact on insurers financialperformance and also indicates that there is a positive relations...
Determinants of Financial Performance; Evidence from Ethiopia Insurance Companies
journal of accounting finance and auditing studies (JAFAS)
The objective of this research was identifying the determinants of financial performance in case of Ethiopian Insurance Companies over the period of 2010 2015. Profitability ratios were used as proxy of financial performance measurement; return of asset (ROA) and return of equity (ROE). Panel data set from nine insurance companies over the period of six used. The descriptive statistics implied that nonexistence of variation in ROA and ROE since the standard deviation statistics for ROA (34%) and ROE (11%) were below the respective means (63% and 19%). To identify the determinants of financial performance, Ordinary least squire (OLS) estimation method was employed. The estimation result showed that capital adequacy, liquidity, size, age, loss, leverage were the key determinants of financial performance. From this researchers concluded that financial performance mainly driven by firm specific factors. Thus, attention should be given to firm specific variables to have a sound financial performance.
Factors Affecting Financial Performance of Ethiopian Insurance Companies
2018
Factors' affecting financial performance of Ethiopian insurance companies has been considered to be an important issue on financial performance of Ethiopian insurance companies. This study empirically examines factors that affecting financial performance of insurance companies in Ethiopia and interprets the result by relating with the regulations. The study used balanced data model in examining the regression model and collect data from eight insurance companies covering the period of eighteen (18)consecutive years, 2000-2017.To this end, the study employed quantitative research approach by reviewing documentary analysis. The study used panel data techniques specifically fixed effect model on the regression analysis and used E-view8 software. The study used one dependent variable return on asset (ROA), eight independent variables that are Credit risk, liquidity ratio, reinsurance dependence, company size, technical provisions risk, underwriting risk, inflation rate and deposit interest rate. The regression result show that credit risk, liquidity ratio, underwriting risk and technical provisions risk show
Determinants of Insurance Companies' Profitability in Ethiopia
2014
This paper examined the effects of firm specific factors (size of company, leverage ratio, liquidity ratio, loss ratio/ risk, tangibility of assets, growth and managerial efficiency) and macroeconomic factors (economic growth and inflation) on profitability peroxide by ROA. The sample in this study includes ten insurance companies for six years (2008-2013). Secondary data obtained from the financial statements (Balance sheet and Profit/Loss account) of insurance companies, and financial publications of MOFED are analyzed. From the regression result; size, leverage, tangibility of asset, loss ratio/ risk, firm growth and managerial efficiency are identified as significant determinants of profitability hence firm size, tangibility of asset, firm growth and, managerial efficiency are positively related. In contrast, leverage and loss ratio/ risk are negatively but significantly related with profitability. Liquidity, inflation, and economic growth are not significant determinants of pro...
A Study on the Performance of Insurance Companies in Ethiopia
2020
Profitability is one of the most important objectives of financial management because one goal of financial management is to maximize the owner` s wealth. This paper examined the effects of firm specific factors (age of company, size of company, volume of capital, leverage ratio, liquidity ratio, growth and tangibility of assets) on profitability proxied by Return on Assets. Profitability is dependent variable while age of company, size of company, volume of capital, leverage liquidity ratio, growth and tangibility of assets are independent variables. The sample in this study includes nine of the listed insurance companies for nine years (2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)(2011). Secondary data obtained from the financial statements (Balance sheet and Profit/Loss account) of insurance companies, financial publications of National Bank of Ethiopia are analyzed. From the regression results; growth, leverage, volume of capital, size, and liquidity are identified as most im...
Financial Structure and Firm Performance Evidence from Ghana’s Insurance Industry
KNUST Thesis Repository Space, 2021
The researcher intended to ascertain with evidence, the financial structure and firm performance of Ghana’s Insurance Industry and taking into consideration industry specific factors that jointly impacts financial performance. The casual research was conducted on 15 non-life insurance companies for a 6-year period ranging from 2013 to 2018. The purposive sampling used in this research was subject to insurance companies that has more than 10 branches across the nation and has been in operation for 10 years and having good standing with the NIC. The population of insurance companies in good standing with the National Insurance Commission as at September 2019 stood at 28 active non-life firms and 20 active life insurance firms in the industry. A micro panel data model was created from the Audited financial accounts of the sampled insurance companies on the basis of Financial leverage as proxy for Capital Structure, Liquidity Ratio, Combined Ratio, Firm Size, Growth in Gross Written Premium and Return on Capital Employed as proxy for financial performance. The researcher discovered that financial structure represented by financial leverage was insignificant but had a negative influence on financial performance of insurance firms. Which shows that insurance companies in the industry practice pecking order source of financing. The result also found liquidity ratio and combined ratio as having significant negative impact on the financial performance of firms in the insurance industry while size of firm and growth in gross written premium were found to be insignificant but with a positive impact on the financial performance of firms in the insurance industry.
DETERMINANTS OF PROFITABILITY OF INSURANCE FIRMS IN GHANA
The general objective of the study is to find out the determinants of the profitability of insurance firms in Ghana. Secondary data on financial reports were collected from sixteen insurance firms in Ghana for the period 2005 to 2010.The study was quantitative in nature. It adopted the longitudinal time dimension, specifically, the panel method and ordinary least square regression. The study discovered that, apart from tangibility which has a negative relationship, there is a positive relationship between leverage, liquidity and profitability of insurance firms in Ghana. It was also concluded that, the profitability model adopted has been explained in respect to all the independent variables and that the degree of error is less than 20%. Finally, it is suggested that the explanatory variables used in this study should be regressed on Return on Equity to find their extent of relationship on profitability. Keywords: Determinants, Profitability (Return on Assets), leverage, liquidity and Tangibility.
Firm Specific Determinants of General Insurance Business Solvency Margin: Evidence from Ethiopia
This study aimed to examine the effects of firm specific factors (firm size, liquidity ratio, operating margin, loss ratio, expense ratio, premium growth, and reinsurance & actuarial issue) on solvency margin. Solvency margin is dependent variable while firm size, liquidity ratio, operating margin, loss ratio, expense ratio, premium growth and reinsurance & actuarial issue are independent variables. Multiple regression analysis was carried out in order to see independent variables impact on the solvency margin of insurance companies. The outcome of the study revealed that firm size, liquidity ratio and reinsurance & actuarial issue affect solvency margin were found positively and significantly affects the solvency margin of insurance companies whereas the other variables were found statistically insignificant. The national regulator should develop a clear directive regarding the reinsurance arrangement of the insurance company and set the minimum level insurance premium for each class of business.