Corporate Audit Committee Independence and Financial Performance of Insurance Companies in Kenya
DOI:
https://doi.org/10.53819/81018102t3187Abstract
While the insurance industry in Kenya plays a critical role in economic stability through risk mitigation, financial protection, and investor confidence, it has faced persistent financial challenges that have contributed to the collapse of some firms. This study examined the effect of audit committee independence on the financial performance of insurance companies in Kenya. The study was guided by agency and shareholder primacy theories. A positivist philosophy and causal research design were adopted to analyse the relationship between audit committee independence and firm performance. A census approach was applied, covering 49 insurance firms over a 10-year period from 2015 to 2024. Data were obtained from audited financial statements, annual reports, and regulatory sources. The study relied on secondary panel data capturing audit committee independence and return on equity (ROE) as the measure of financial performance. Both descriptive and inferential statistical techniques were applied. The findings indicate that audit committee independence has a statistically significant negative effect on ROE after controlling for firm and time effects. The results suggest that increased independence strengthens monitoring, enhances oversight of financial reporting and risk management, and reduces managerial discretion, but may also lead to more conservative financial practices and higher compliance costs that constrain short-term profitability. The findings show that governance mechanisms operate within a context where improved accountability and transparency do not always translate into immediate financial gains. The study provides evidence that audit committee independence remains an important governance mechanism, with its influence on performance reflecting a trade-off between strengthened oversight and short-term financial outcomes in Kenya’s insurance sector.
Keywords: Audit Committee Independence, Corporate Governance, Financial Performance, Insurance Companies, Return on Equity
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