Effects of Capital Structure on Financial Performance of Insurance Companies in Nepal

Bishnu Prasad Bhattarai

doi:10.5296/ijafr.v10i3.17674

Abstract

The study has examined the effects of capital structure on financial performance of insurance companies in Nepal. Data were collected from the annual report of the respective insurance companies' web site. The panel data of 14 Nepalese insurance companies from 2007/08 to 2015/16, leading to a total of 126 observations. The data were analyzed using pooled OLS model, random effect model and fixed effect model. The study has been return on assets as dependent variable whereas total debt ratio, equity to total assets, leverage, firm size, liquidity ratio and assets tangibility are independent variables. The result concluded that equity to total assets, leverage, and assets tangibility have effects the financial performance in Nepalese insurance companies' cases.

Highlights

In insurance company, performance is normally expressed in net premiums earned, profitability from underwriting activities, annual turnover, returns on investment and return on equity
Data were collected from the annual report of the respective insurance companies' web site
The result concluded that equity to total assets, leverage, and assets tangibility have effects the financial performance in Nepalese insurance companies' cases

Summary

Introduction

Performance is normally expressed in net premiums earned, profitability from underwriting activities, annual turnover, returns on investment and return on equity. These measures can be classified as profit performance measures and investment performance measures. The relationship between capital structure and profitability has been the subject of remarkable milestone over the past decade. The capital structure decision is critical for the continued existence of any business organization so as to maximize returns to stakeholders (Akintoye 2008). The many studies have been carried out to investigate the relationship that exists between financial leverage and performance. Some studies indicated that there is no relationship between capital structure and performance (Prahlathan & Rajan 2011)

Methods

Results

Conclusion