Capital Structure of Insurance Companies on the Profitability of Insurance Companies in Nigeria
Abstract
This study's main goal was to investigate how capital structure affects Nigerian insurance companies' profitability. The study specifically examined the impact of debt ratio capital, shareholders fund capital, and equity share capital on Nigerian insurance companies' profitability. The study used secondary data from the Central Bank of Nigeria and the National Insurance Commission statistics bulletins, which included 24 years of yearly time series observations from 2000 to 2023. The long-term and short-term associations between the variables were estimated using the autoregressive distributed lag model and the Augmented Dickey Fuller unit root test using EViews software. The empirical findings showed that while debt ratio capital has a negative but statistically significant impact on profitability, equity share capital and shareholders fund capital have positive and statistically significant effects on the profitability of insurance businesses in Nigeria. Overall, the results show that capital structure has a major impact on Nigerian insurance businesses' profitability. Based on these results, the study advised management of Nigerian listed insurance companies to work toward maintaining an ideal capital structure by bolstering equity financing and minimizing undue reliance on debt. This is because equity holders not only supply funds but also offer important managerial knowledge, experience, and strategic connections that can boost business expansion and policyholder patronage.
Keywords
Capital StructureProfitabilityEquity Share CapitalShareholders Fund CapitalDebt RatioInsurance CompaniesNigeria. .
References
Abdullahi, B. A.; Rohami, B. S. & Kuwata, G. (2017). Corporate governance as a mechanism for measuring financial performance of banks in Nigeria. Journal of Accounting and Management, 8(1), pp. 1-19. Adebayo, M.; Ibrahim, A. O. B.; Yusuf, B. & Omah, I. (2014). Good corporate governance and organisational performance: An empirical analysis. International Journal of Humanities and Social Science, 4(7), pp. 170-178. Aida, M. I. (2013). Development of a corporate integrity assessment instrument using corporate governance indicators in Malaysia. A thesis submitted in total fulfillment of the requirements for the degree of Doctor of Philosophy. Victoria University, Malaysia. Akinbola, O. E. (2017). Ethical issue: A problem in Nigeria insurance companies. A Master Thesis in MBA Submitted to School of Management. Blekinge Institute of Technology, Sweden. Akintunde, J. (2015). Burning issues in Nigerian insurance industry Financial Nigeria.http://www.financialnigeria.com/development/developmentreport_category_item _detail.aspx?categor yid=16&item=173(last accessed 10 August 2011). Al- Faki, M. (2016). Transparency and corporate governance for capital market development in Africa: The Nigerian case study. Securities Market Journal, Edition, pp. 9-28. Amah, E. (2017). Corporate culture and organisational effectiveness: A study of the Nigerian banking industry. European Journal of Business and Management, 4(8), pp. 212-229. Beale, D. & Hoel, H. (2020). Workplace bullying, industrial relations and the challenge for management in Britian and Sweden. European Journal of Industrial Relations, 16(2), pp. 101-118. Bhagat, S. & Black, B. (2017). The non- correlation between board independence and long-term firm performance. Journal of Corporation Law, 27, pp. 231- 274. Demmke, C. & Moilamen, T. (2011). Effectiveness of good governance and ethics in central administration: evaluating reform outcomes in the context of the financial crisis. European Institute of Public Administration. https://www.effentlicherdienst.gv.at. Donaldson, T. & Preston, L. E. (1995). The stakeholder’s theory of the corporation: concept, evidence, and implication. Academy of Management Review, 20, pp. 65-91. Dubihlela, J. & Dhurup, M. (2014). Modelling the effects of Market Orientation enablers on business performance among SMEs in a Developing country. Meditteraneen Journal of Social Sciences, 5(16), pp. 33-41. Ebitu E. T. (2014). Promoting ethical behavior in business in Nigeria and International Market. International Journal of Innovation in Management Sciences, 4(2), pp. 126 -130. Ebitu, E.T.; & Beredugo, S.B. (2015). Business ethics and the performance of service firms in Calabar, Cross River State, Nigeria. European Journal of Hospitality and Tourism Research, 3(2), pp. 28-38. Eisenberg, T.; Sundgren, S. & Wells, M. (2018). Larger board size and decreasing firm value in small firms. Journal of Financial Economics, 48, 35- 54. Fadun, O. S. (2013). Corporate governance and insurance company growth: Challenges and opportunities. International Journal of Academic Research in Economics and Management Sciences, 2(1), pp. 286-305. Freeman, R. E. (1984). Strategic management: A stakeholder approach. London, Pitman. Gompers, P.; Ishii, L. & Metick, A. (2013). Corporate Governance and Equity Prices. Quarterly Journal of Economics, 118, pp. 107-155. Hermalin, B. & Wesibach, M. (2017). Boards of directors as endogenously determined institutions: A survey of the economy literature. Economy Policy Review. March, 48-62. Ibrahim, H. & Abubakar, S. (2011). Recapitalization and profitability of quoted insurance companies in Nigeria. www.businessafricaevents.com/docs/pdf/transformation. Jensen, M. C. (2017). Value maximization , stakeholder theory and the corporate objective function. Journal of Applied Corporate Finance, Fall. Klein, A. (2017). Audit committee, board of director characteristics and earnings management. Journal of Accounting and Economics, 33, pp. 375- 400. Lemo, T. (22-23 September, 2020). Keynote Address of the 34th Conference of ICSAN. Sheraton Hotel and Towers. Banquet Hall, Lagos. Mak, Y. & Kusnadi, Y. (2015). Size really matters: further evidence on the negative relationship between board size and firm value. Pacific- Basin Finance Journal, 13, pp. 56-67. McMurrian, T. & Matulich, N. (2016). Building customer value and profitability with business ethics. Journal of Business and Economics, 4(11), pp. 11-18. Momoh, O. A. & Ukpong, M.S. (2013). Corporate governance and its effects on the Nigerian insurance industry. European Journal of Globalization and Development Research, 8(1), pp. 475-491. NAICOM (2014). NAICOM corporate strategic plan 2011-2015. http://naicom.gov.ng/payload?id=32a9d8c6-4da1-432d-b6b4-f2306c71b787. National Insurance Commission (2009). Code of good corporate governance for the insurance industry in Nigeria. NAICOM. Nduna, A. J. (2013). Low insurance penetration in emerging economics and way forward The African experience. Zimbre Holdings Limited at the 17th Insurance Congress of Developing Countries Colombo Srilanka, pp. 1-14. Odia, J. O. (2015). Corporate characteristics and corporate social and environmental disclosures quantity in Nigeria. Journal of Accounting-Business & Management, 22(1), pp. 13-28. OECD (2015). Corporate governance and business integrity: A stocktaking of corporate practices. www.oecd.org. Ogbechie, C. (2016). Corporate governance a challenge for Nigerian banks. www.Businessdayonline.com. Ojo, O. (2018). Organisational culture and performance: Empirical investigation of Nigerian insurance companies. Management manager, 8, pp. 118-127. Omar, O. E.; (2017). The retailing of life insurance in Nigeria: An assessment of consumers attitude. Journal Retail Marketing Management Research, 1(1), pp. 41-47. Obamiro, K. J.; Moses, C. L. & Osibanjo, O.A . (2016). Research methodology with simplified step-by-step application of SPSS package. Lagos: Pumark Nigeria Limited. Oyetayo, Y. (2012). Transparency and accountability in the supervision of the Nigerian Insurance Industry: A review of statutory provisions. Lagos State University Law Journal, VIII/2-3, 57. Oyetayo, Y. (2015). Principles-based regulations: A model for legal reform in the Nigerian insurance industry. Journal of African Law, 59(1), pp. 64-84. Rok, B. (2009). People and skills ethical context of the participate leadership model: Taking people into account. Corporate Governance, 9(4), pp. 461-472. Sanda, A. U.; Mikailu, A. S.; & Garba, T. (2015). Corporate governance mechanisms and firm financial performance in Nigeria. AERC Research Paper 149, Nairobi. Saunders, M. N.; Lewis, P. & Thornhill, A. (2012). Research methods for business students, 6th Ed. England: Pearson Education Limited. Soba, M.; Erem, I.; Ceylan, F. (2016). The impact of corporate governance practices on bank efficiency: A case of Turkey. Journal of Suleyman Demirel University Institute of Social Sciences, 3(25), pp. 305-322. Tennent, J. (2018). Guide to Financial Management. In Profile Books Ltd 3a Exmouth House, Pine Street, London ec1r 0jh www.profilebooks.com Copyright. Profi le Books Ltd 3a Exmouth House, Pine Street, London ec1r 0jh www.profi lebooks.com Copyright. Vishwanath. (20017). Corpotate Finance. In Angewandte Chemie International Edition, 6(11), 951–952.
More Articles from WORLD JOURNAL OF FINANCE AND INVESTMENT RESEARCH
Advances in Quantitative Evaluation Models for Measuring Corporate Diversity and Inclusion Investments
Author: Ngonadi Uchechi, Michael Ominyi, Cyril Chimelie Anichukwueze, Ngozi Samuel, Uzougbo.
Effect of Naira Re-Design Policy on the Performance of Small and Medium Scale Enterprises in Sokoto State, Nigeria
Author: Sadat Ibn Adam and Adamu Idris
Entrepreneurship Development Access to Credit and Business Performance Among Youth-Owned Enterprises (A Study of Phone Accessories Business in Umuahia Metropolis, Abia State Nigeria)
Author: Aliba Ijeoma Vivian, Ikwuagwu Henry Chinedu, PhD, Maduagwuna Veronica Ifeyinwa, PhD
Stock Market Performance of Firms in the Nigerian Petroleum Sector Using the ARIMA Model Approach
Author: Dr. John Okey Onoh AND Gbalam Peter Eze (Ph.D)
Financialization and Swapization: A Chinese Lifeboat for Economic Development of Nigeria
Author: Department of Accountancy Imo State Polytechnic, Umuagwo Nigeria