Impact of Corporate Governance on Financial Performance of Nepalese Insurance Company

International Journal of Economics and Management Studies
© 2020 by SSRG - IJEMS Journal
Volume 7 Issue 12
Year of Publication : 2020
Authors : Laxmi Panday, Jyoti Pandey
pdf
How to Cite?

Laxmi Panday, Jyoti Pandey, "Impact of Corporate Governance on Financial Performance of Nepalese Insurance Company," SSRG International Journal of Economics and Management Studies, vol. 7,  no. 12, pp. 83-90, 2020. Crossref, https://doi.org/10.14445/23939125/IJEMS-V7I12P113

Abstract:

This study examines the impact of corporate governance on the performance of Nepalese insurance companies. Return on assets and return on equity are the dependent variables. The independent variable is board size, independent directors, female directors, board meetings, and higher shareholders percentage. This study is based on secondary data collected from 20 insurance companies operated in Nepal from 2012/13 to 2016/17lending to 105 observations. The data were collected from annual reports of selected insurance companies. The regression models are estimated to test the significance and impact of corporate governance and firm performance on other insurance-specific variables on Nepalese insurance companies' performance. The study reveals that board size is positively related to return on assets. It shows that the larger the board size, the higher would be the return on assets. Similarly, the number of the board meeting is positively correlated to return on assets. The result shows that return on assets is positively correlated to the number of female directors in the board, which indicates that the number of female directors on the board leads to an increase in return on assets. Likewise, there is a negative relationship between the percentage of higher shareholders and return on assets, which indicates that the increase in the percentage of higher shareholders leads to a decrease in assets return. Similarly, the study shows that board size is positively related to return on equity. It shows that the larger the board size higher would be the return on equity. Similarly, the number of board meetings is positively correlated to numbers to return on equity. It indicates that an increase in the number of board meetings leads to an increase in equity return. The result shows that return on equity is positively correlated to the number of female directors on the board, which indicates that an increase in the number of female directors on the board leads to an increase in equity. Likewise, the percentage of higher shareholders is positively correlated to return on equity, which indicates that the increase in the percentage of higher shareholders leads to an increase in equity return. The regression results show that the beta coefficients for board size and leverage are positive with return on assets. However, the beta coefficients for the number of board meetings are positive with return on assets. The result also shows that the beta coefficients for board size and the number of independent directors are negative with return on Equity in Nepalese insurance companies.

Keywords:

Return on Assets, Return on Equity, Board size, female directors, independent directors, percentage of higher shareholders, leverage.

References:

[1] Adhikari, P. (2014). CORPORATE GOVERNANCE PRACTICES IN COMMERCIAL BANKS IN NEPAL. Abhinav International Monthly Refereed Journal of Research in, 55-64.
[2] Fadun, O. S. (2013). Corporate Governance and insurance company growth: challenges and opportunities. International Journal of Academic Research in Economics and Management Sciences, 1.
[3] Fekadu, G. W. (2015). Corporate Governance On Financial Performance Of Insurance Industry. Corporate Ownership & Control, 10.
[4] Hsu, W.-Y., & Petchsakulwon, P. (2010). The iImpact of Corporate Governance on the Efficiency Performance of the Thai Non-Life Insurance Industry. The Geneve Papers on Risk and Return, 28-49.
[5] Wang, J. L., Jeng, V., & Peng, J. L. (2007). The Impact of Corporate Governance Structure on the Efficiency Performance of Insurance Companies in Taiwan. The Geneve paper of risk and return, 264–282.
[6] Buallay, A., Hamdan, A., & Zureigat, Q. (2017). Corporate governance and firm performance: Evideence from Saudi Arabia. Australasian Accounting Business and Finance, 78-98.
[7] Dahal, A., Joshi, A., Khanal, B., Koirala, D., & Adhikari, D. (2015). Corporate governance and firm performance: the role of transparency and disclosure in the banking sector. Nepalese Journal of Management, 24-35.
[8] Demeke, A. T. (2016). Corporate Governance Mechanisms and Firm Performance: The Case of Ethiopian Insurance Industry. Journal of Investment and Management, 6-16.
[9] Demeke, A. T. (2016). Corporate Governance Mechanisms and Firm Performance: The Case of Ethiopian Insurance Industry. Journal of Investment and Management, 6-16.
[10] Gulamhussen, A. M., & Santa, F. S. (2015). Female directors in bank boardrooms and their influence on performance and risk. Global Finance Journal, 28 10-23.
[11] Gupta, R. K., & Chand, R. (2018). Effect of Board diversity and corporate governance structure on operating Performance: Evidence from the Nepalese Enterprises. Neplease journal of economies, 1-16.
[12] Gupta, P., & Sharma, A. M. (2014). A study of the impact of corporate governance practices on firm performance in India and south koeria company. Symbiosis Institute of Business Management, 4-11.
[13] Guragain, S., & Karki, S. (2016). The effect of board size, board composition, and ownership structure on bank performance: A case of Nepalese commercial bank. Neplease journal of finance, 104-116.
[14] JAVID, A. Y., & IQBAL, R. (2008). Ownership Concentration, Corporate Governance, and Firm Performance: Evidence from Pakistan. Pakistan Development Review, 643- 649.
[15] Kingsley, T., & Theophilus, W. (2012). Corporate Governance and Firm Performance: Evidence from the. European Journal of Business and Management, 13.
[16] Kipesha, E. F. (2013). Impact of size and age on firm performance: Evidence from microfinance institutions in Tanzania. Research Journal on Finance and Accounting, 4(5), 66-85.
[17] Lamichhane, P. (2016). Corporate Governance and Financial Performance. Neplease Journal of Management, 86-120.
[18] Lipton, M., & Lorsch, J. (1992). A modest proposal for improved corporate. Business Lawyer, 48. 59-77.
[19] Lückerath, R. (2013). Women on boards and firm performance. Journal of Management and Governance, 17, 491–509.
[20] Mohamma, A. A., & Fadzil, F. H. (2018). Effect of Board Independence and Board Meeting on Firm Performance: Evidence from Jordan. Journal of Finance and Accounting, 6(5): 105-109.
[21] Najjar, N. (2012). The Impact of Corporate Governance on the Insurance Firm's Performance in Bahrain. International Journal of Learning & Development.
[22] Ntim, G. C. (2009). Internal corporate governance and firm financial performance: evidence from South African listed firms. Ph.D. thesis.
[23] Poudel, R. P., & Hovey, M. T. (2013). Corporate governance and efficiency in Nepalese commercial bank. International Review of Business Research papers, 53-64.
[24] Pradhan, R. S., & Adhikari, S. N. (2009). corporate governance and firm performance. Journal of management review, 22-29.
[25] Sharma, G., & Karki, M. (2014). Role of corporate governance on banks performance: A case of Neplease Bank. Nepalese Journal of corporate governance, 23-45.
[26] Silwal, P. P. (2011). Effect of corporate governance on the performance of Neplease firms. The International Research Journal of Management Science, 35-47.
[27] Thagunna, k. S., & poudel, S. (2013). Measuring bank performance of Neplease bank A data envelopment analysis (DEA) perspective. International Journal of Economics and Financial issues, 54-65.
[28] Tornyeva, K., & Wereko, T. (2012). Corporate Governance and Firm Performance: Evidence from the Insurance Sector of Ghana. European Journal of Business and Management, 13.
[29] Vithessonthi, C., & Tangurai, J. (2015). The effect of leverage on performance: domestically oriented vs. internationally oriented firms. Research in international business and finance, 34(C), 265-280.
[30] Wu, Y. (2003). Honey, Calpers shrunk the board. Journal of Corporate Finance, 8:313-336.
[31] Yensu, J., osei, Y., & Atuilik, D. A. (2017). Corporate Governance Structure and Insurance Companies performance in Ghana. Institute of Entrepreneurship and Enterprise Dev, 2222-2847.
[32] Yermack, D. (1996). The higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40(2):185-211.
[33] Zhang, N. (2013). Empirical Research on the Impact of Female Directors on Corporate Performance: Evidence from 973 Listed Companies in China. Collection of Women's Studies, No. 4, 38-48., 4, 38-48.