The Effect of Types of Investment on the Financial Performance of Insurance Companies in Ethiopia
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Date
2021-07
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A.A.U
Abstract
Insurance plays a major role as risks mitigating mechanism in modern day financial system. The existence and survival of financially strong Insurance Companies play crucial role in development of financial and social stability, expansion of trade and production and economic development. For Insurers to be more reliable and financially sound, knowing what factors affect their financial performance is very crucial. To achieve this objective, this study specified the relationship between the different types of investments factors and the overall performance of insurance companies in Ethiopia as measured by ROA. The sequential explanatory strategy of the mixed research approach was used to identify the relationship between independent variables of investment in properties, investment in government bond, investment in shares, liquidity ratio and age of the company and dependent variable ROA. The study also used secondary panel data during the period 2011 to 2020 and select eleven insurance companies from the total insurance companies operates in Ethiopia using purposive sampling techniques. Multi-linear regression analysis and OLS regression analysis have been performed to analyse the financial performance of insurance companies using Random effect model. The study finds that return on asset has be negatively and insignificantly affected by investment in properties. On the other hand, investment in government bond has a positive but statistically insignificant effect on ROA. However, investments in shares and age of the insurance companies have strongly positive and significant effect on the financial performance of the insurers. In addition to that, the return on asset has been positively and significantly affected by insurance size and liquidity ratio. The same result revealed from the interviewees on the relation between the variables in the study and ROA. Therefore, the study recommended insurance companies to invest more in shares and gave emphasis on company’s specific factors, company size, age representing experience and liquidity ratio to enhance their financial Performance objectives.
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Financial Performance, Insurance Companies