Government Securities Investment and Profitability: Evidence from Listed Insurance Companies in Kenya
DOI:
https://doi.org/10.53819/81018102t3168Abstract
Kenyan insurance companies are crucial in furtherance of National Gross Domestic Product. The government of Kenya has enacted polices to regulate the industry to ensure maximum utilization of its potential to the growth of economy. Despite gearing, reduction in their profits over the last few years have been witnessed due to increasing competition, low uptake of insurance products, and ineffective investment decisions and contingency planning. This study purposed to ascertain investment decision impacts on profitability of Nairobi Securities Exchange insurance companies with specifics on equity investment, government securities (bonds), corporate bonds and investment properties. Theories of Resource based view, modern portfolio, CAPM and arbitrage pricing would bolster the review. The research adopted a cross-sectional research design, utilizing secondary data from audited financial reports of listed insurance companies. The small populace of 6 companies advised a census technique method with the review period being 2015-2024 (10 years). Descriptive statistics, correlation analysis and panel data regression analysis were applied to explore the variable’s associations. Diagnostic tests were performed to examine any violation of regression assumptions and they included normality, heteroscedasticity, autocorrelation, multicollinearity, stationarity and hausman tests. The analysis on regression concluded a negative association of equity and corporate bonds on profitability. Government bonds revealed a positive and significant association while property investments showed an insignificant positive impact on profitability. The interaction involving firm size and investment decisions showed a significant negative effect. The research recommended that listed insurance firms should be more cautious in managing their equity portfolio including identifying and selling off underperforming equities. Allocation of government securities should be increased due to their positive impact on profitability. Firms should also strengthen their credit risk assessment processes on corporate bond issuers as this will limit negative impacts on profitability. Embracing more liquid and immediate profit-generating assets was recommended along with property assets to boost the overall portfolio performance. On the other hand, large insurance firms should prioritize improving managerial efficiency through simpler governance structures. Various researchers are called upon to compare listed and unlisted insurance companies as well as other financial sectors in Kenya.
Keywords: Government Securities, Bonds, Insurance Profitability, Return on Assets, Nairobi Securities Exchange, Kenya
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