Does Corporate Diversification Influence Market Share? Evidence from Kenyan Insurance Sector

Abstract

Insurance industry is among the large investors in the financial markets that play a key role of stabilizing financial systems. The industry acts as a growing link between insurers and other financial intermediaries by safeguarding the financial security of households and firms through insurance of risks, provision of long -term capital and overall stability of an economy. Global corporate failure has not spared the insurance industry at regional and local levels which has triggered insurance companies to opt for diversification to expand their markets, enhance returns and survival. This study examines corporate diversification-market share link in the Kenyan insurance sector. The study employs entropy index to measure corporate diversification, and market share as indicator for performance. The study is anchored on modern portfolio theory and supported theory of organizational effectiveness. The target population comprises fifty-six insurance firms in Kenya. Secondary data was collected from published account and company accounts filled at the insurance regulatory authority. Market share was computed as the percentage of gross written premium (GWP) for each company in relation to total industry GWP between the years 2016 and 2020. This study adopted a descriptive research design. Preliminary statistical tests undertaken include descriptive statistics such as the mean, standard deviation, skewness and kurtosis. Correlation analysis was done to test the direction of the relationships while regression analysis was used to test the hypotheses. The study findings established that corporate diversification has a significant influence on market share. From the empirical findings of this study, companies that have ventured into more lines of business have reported higher entropy index than those with fewer lines of products and perform well thus managers of insurance companies should focus on creation and selling more appealing products and improve on penetration to the large untapped market. Future research can be extended to contexts within the developing economies category and other financial service sectors and non-financial sectors by evaluating the diversification index that is well suited to them that would provide more insights into the relationships.