The Relationship between Corporate Governance and Organizational Performance of Insurance Companies in Kenya

Abstract

The environment in which insurance companies operate has been fraught with various corporate governance challenges that have hindered its progress. Thus, a deliberate effort has to be made to avoid future corporate mismanagement and company failures given the important role insurance plays in the economy of Kenya especially towards the development of the small and large scale firms through ensuring financial security. This study sought to establish the relationship between corporate governance and organizational performance of insurance companies in Kenya. This study was anchored on Agency. Positivism philosophical foundation was adopted with a cross-sectional survey. The study population comprised of 52 insurance companies in Kenya licensed by the Insurance Regulatory Authority (IRA) as at December 2017.  This study utilized primary data collected using questionnaires. The influence of corporate governance was evaluated based on dimensions of three constructs namely transparency, board responsibility and ownership structure. The results indicated that corporate governance was positively and significantly associated to performance. This was an indication that corporate governance portrayed a strong connection with organizational performance. The null hypothesis of the study was corporate governance has no significant relationship with organizational performance of insurance companies in Kenya was rejected. The study concluded that good corporate governance influences organizational performance, therefore it can be concluded that higher profitability for the insurance firms is as a result of better corporate governance practices. Subsequently, insurance firms need to maintain good corporate governance practices by having appropriate board structure and composition that takes into consideration diversification of expertise. The study recommends that policy and decision makers need to ensure that appropriate corporate governance mechanisms are implemented in organizations. This constructs of corporate governance play a key role in effective governance of organizations. Policy and decision makers can use the findings in developing codes of governance that govern the practice. The management can utilize the findings to enrich codes of governance to include people management and leadership making them more effective especially against the backdrop of several corporate collapses that have been linked to the people factor in organizations. Keywords: Corporate Governance, Transparency, Board Responsibility, Ownership Structure, Organizational Performance, Insurance Companies & Kenya.