Board Characteristics and Shareholder's Value Creation of Insurance Companies Listed in the Nairobi Securities Exchange, Kenya

Abstract

The corporate board ensures desirable shareholder value creation because of its immense role in strategic oversight, performance evaluations and governance. The board is at the center, as evidenced by the accelerated growth of private insurance companies worldwide. However, insurance companies in Kenya have experienced slow growth over the last decade. To get a clear understanding of the effects of the board on a corporation’s financial performance, it is vital to assess the association between the characteristics of the board characteristics and its creation of shareholder value. The study examined the impact of board characteristics on the shareholder’s value creation for Insurance companies listed on the Nairobi Securities Exchange (NSE). The study aimed to establish the effect of board characteristics (size, diversity, independence, and expertise) on shareholder value creation in listed insurance companies. The shareholder, resource dependency, stewardship, and agency theories underpin the study. The study used a descriptive research design to analyze five insurance corporations listed on Nairobi Securities Exchange (NSE) for ten years from December 2010 to 2020. The study utilized data published in audited annual reviews and reports for the five selected insurance corporations listed on the Nairobi Securities Exchange. A correlational analysis was employed to test the degree and strength of the relationship between the variables understudy, and a regression model was developed. The study established that board expertise had the most significant impact on shareholder value creation, followed by board size, board diversity and board independence. The study recommended the prioritization of the board expertise to boost shareholder value creation, the optimization of board sizes depending on company needs and the inclusion of more women on boards.