Monetary policy variables and return on equity: Empirical evidence of quoted insurance firms in Nigeria

Abstract

This study examined the effect of monetary policy variables and return equity of quoted insurance firms in Nigeria. Secondary data were obtained from the financial statement of 15 quoted insurance firms and the Central Bank of Nigeria Statistical Bulletin. The study modelled return on equity as the dependent variables while money supply, private sector credit, monetary policy rate, treasury bill rate and real interest rate as independent variables. Panel data methodology is employed while the fixed effects model was used as estimation technique at a 5% level of significance. Fixed effects, random effects and pooled estimates were tested while the Hausman test was used to determine the best fit. From the findings, the study conclude that money supply and real interest rate have negative but no significant effect on the return on equity. Monetary policy rate and private sector credit have a positive and significant effect while the Treasury Bill Rate have a positive but no significant effect on the return on equity of the insurance firms. It recommends that the management of the insurance companies should devise measures of managing the negative effect of monetary policy instruments on the performance of the insurance companies and the monetary authorities should harmonize the profitability objectives of the insurance companies with that of monetary policy to avert the negative effect on return on equity of the quoted insurance firms.