Corporate governance mechanisms and efficiency of insurance firms: evidence from an emerging market

Abstract

The paper assessed linkage amongst governance mechanisms and efficiency of insurers in Kenya over 8 year period from 2013 to 2020. The study estimated the efficiency of insurers using DEA approach in light of previous literature during the first stage. During the second stage, the bias-corrected efficiency scores were regressed against corporate governance (CG) proxies and control variables using SW (2007) approach on a sample of 53 insurers. Using this two-stage, bootstrapping SW approach, the study documents that the Kenyan insurers are technically inefficient. Overall, the paper presents evidence showing that CG variables influence technical efficiency of insurers in Kenya. Precisely, board independence, gender diversity and audit quality positively and significantly impact Kenyan insurers’ technical efficiency. Further, the paper finds that size of the board negatively affect Kenyan insurers’ technical efficiency. However, the study established insignificant relationship between CEO duality, intensity of board activities and technical efficiency. The paper makes contribution to the bourgeoning reservoir of empirical works on the insurers’ CG-efficiency nexus from an emerging market perspective. Particularly, the article offers empirical insights on some of the least studied CG proxies such as gender diversity, quality of audit and intensity of board activities. The research outcomes also have practical implications for regulators, academia, insurers, government policy makers, practitioners, shareholders and consumers of insurance products by raising their awareness on the influence of CG proxies on the efficiency of the insurers. This is especially beneficial in countries that are pursuing CG and efficiency policy reforms.