EVALUATION OF THE IMPACT OF AUDIT COMMITTEES ON PERFORMANCE OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

MSC Project Topics in Accounting and Finance

ABSTRACT 
Firm specific characteristics have been identified to have an immeasurable role in enhancing the financial performance of companies, but available literatures in this area are mixed and inconclusive. Owing to these mixed and inconclusive findings, the study therefore investigates the impact of firm specific characteristics on the financial performance of listed insurance firms in Nigeria. Financial performance is the dependent variable while age if insurance company, firm size, premium growth, loss ratio, liquidity and leverage are independent variables. The population of the study consists of thirty (30) listed insurance firms as at 31st December 2013. Twelve of the listed insurance firms are selected to form the sample of the study for the period of eight years (2006-2013). The study employed multiple regressions as tool for analysis. Secondary data obtained from the financial statements of the companies were analyzed. Panel data techniques (fixed and random effects model) were utilized to investigate the impact of firm specific characteristics on financial performance and Hausman specification confirmed that random effect model is more appropriate. The result shows that firm size, loss ratio, liquidity, and leverage are the most important determinants of financial performance. Hence, firm size, loss ratio and leverage are negatively related. In contrast, liquidity ratio is positively and significantly related with financial performance. Lastly, age of insurance company and premium growth are not significantly related with financial performance of listed insurance firms in Nigeria. For insurance companies to achieve a greater profit and competitiveness in the market, it is therefore recommended that the companies should conduct careful evaluation and take into consideration firm specific characteristics (firm size, loss ratio, liquidity and leverage) that influence the financial performance of the company before making major business decision as this will go a long way in improving their financial performance.

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

The insurance industry plays a major role in the society as they stimulate the economy at large. This is because the sector is part of immune and repair system of an economy and successful operation of the industry can set energy for other industries and development of an economy (Abate, 2012). Indeed, a well-developed and evolved insurance industry is critical to conditions for economic development as it provides long term funds for long term investment and at the same time strengthens the risk taking ability of the country. The importance of insurance companies become more obvious for businesses and individuals as they indemnify business losses, thereby safeguarding economic activities in the society from collapse. Insurers provide economic and social benefits in the society not only by prevention of losses, but through reduction in anxiety and fear, increase employment and also through accumulated premium generated for long term investment. Thus, like any other industry, insurance companies are expected to continue improving their performance so as to sustain their role in the society.

The performance of any business firm not only plays the role to increase the market value of that specific firm but also leads toward the growth of the whole sector and the overall success of the economy (Ahmed, Naveed & Usman). In this regards, a sound financial management should be consistent with the drives to improve and increase profitability so as to meet the goal of individual firm owners. The primary desire of any firm is to earn more profit and enhance the wealth of its stakeholders (Gitman, 2007). However due to challenges in internal and external environment, most firms are unable to meet their goals. In other words, performance is a function of the ability of an organization to gain and manage its resources in several different ways so as to develop competitive advantages (Iswatia & Anshoria, 2007).

The performance of insurance companies could be affected by both internal and external factors. The internal factors are those management controllable factors which account for the inter-firm differences in profitability. On the other hand, external factors are uncontrollable factors which affect firms decision and which management have no control over. However, factors such as growth in money supply, interest rate, inflation rate and gross domestic product are macroeconomic or market-specific factors which are out of control of management. Generally, a firm’s performance can be estimated using firm attributes as a major determinants of insurance profitability. These attributes are firm size, underwriting risk, leverage, age, growth rate of written insurance premium as well as institution and political environment which plays vital roles besides firm specific factors of organization behavior.

In line with the above explanation, the internal factors which focus on insurer’s specific characteristics are grouped into financial and non-financial variables. The financial characteristics are variables which can be derived from the financial statement and profit and loss of insurance companies. These include firm size, premium growth, loss ratio or underwriting of risk, liquidity, tangibility, leverage and so on. On the other hand, non-financial characteristics are those variables which cannot be obtained from the financial statement and profit and loss of insurance companies. They comprise of age of the firm, management competencies, and scope of operation. Although management competencies lead to good financial performance, it is difficult if not impossible to assess management competencies directly because it is assumed that such competencies will be reflected in the operational performance of insurance firms. This study therefore combined five financial variables (firm size, premium growth, loss ratio, liquidity, and leverage) coupled with one non-financial variable which is age of the firm as proxies for firm specific characteristics against the financial performance of listed insurance firms in Nigeria. This study therefore embarks on empirical investigation to find out those firm specific attributes that affect the financial performance of listed insurance firms in Nigeria.

1.2 Statement of the Research Problem

Insurance industry plays a crucial role in fostering commercial and infrastructural businesses. From the latter perspective, it promotes financial and social stability; mobilizes and channels savings; supports trade, commerce and entrepreneurial activity and improves the quality of the lives of individuals and the overall wellbeing in a country (Malik, 2011). To achieve this role, insurance companies are expected to be financially strong and solvent enough through profitability in their operations.

The poor performance of insurance firms in Nigeria as noted by Agabi (2009) stemmed from several years of non-payment of claims by underwriting firms. This tradition of defaulting in claims by insurance firms in Nigeria resulted in reduction of their goodwill which translated to poor image of the sector and as a result, confidence in the sector seems to have eroded significantly. As such, Nigerians no longer consider insuring their valuables due to confidence crisis in the sector. In Nigeria today, there are evidence of performance of several industries such as banking and other financial institutions, however, the insurance sector is not responding appropriately to economic growth due to confidence crises in the sector. This implies that the overall financial performance of insurance firms in Nigeria is weak except for those who have diverse sources of investment.

Measuring the financial performance of insurance companies has therefore gained significant attention in the developed and some developing countries in the area of business and corporate finance literature. As underwriters, these companies are not only providing good mechanism for transferring risk but also help to boost entrepreneurial confidence in appropriate way so as to support investment growth and general economic activities.

Profitability is a vital concern to all groups who have a direct or indirect interest in the firm. In spite of these vital roles that profit plays in the going concern of insurance firms, the profitability status of most insurance firms operating in Nigeria in relation to firm age, firm size, premium growth, loss ratio, liquidity and leverage of the firm have not attracted much attention of researchers in area of finance. This may be attributed to lack of thorough evaluation of factors that play critical role in profit realization of insurance firms in Nigeria. Therefore, it is of interest to know the extent to which firm specific characteristics (firm age, firm size, premium growth, loss ratio, liquidity and leverage) affect the financial performance of listed insurance firms in Nigeria. The firm specific characteristics of the insurance firms are to be assessed to provide valuable information in regards to their effects on performance.

There have been series of studies aimed at isolating firms specific characteristics with performance of insurance companies in developed countries (Greene & Segal, 2004, Deshng, Sandra & Lianga, 2007, Adams, Hardwick & Zou 2008, Al-Shami, 2008, Dieter, 2011, Kozak, 2011 and Charumathi, 2012), while some focused on developing countries (Adams & Buckle, 2003, Ahmed, Naveed & Usman 2011, Abate, 2012, Daniel & Tilahun, 2012, Akotoye, Osei & Gemegah, 2011, Almajali, Sameer & Yahya 2012 and Malik, 2011). However, to the best of our knowledge, none has been done on this sector in Nigeria. Most literatures focus on factors influencing the performance of banks rather than insurance companies (Aburime 2008, Buba 2009, Ani et al 2012 and Akano 2014). Similarly, the outcome of the studies conducted in developed and some developing countries may not be applicable to insurance firms in Nigeria simply because the environment in which the insurance firms operate differs in terms of supervision, regulation and operation. In addition, variables that were used in other studies, especially from developed market may not be consistent with rudimentary Nigeria insurance industry. To this end, the relationship between the firm characteristics and financial performance of insurance firms in Nigeria calls for an empirical investigation. Therefore, mere extension of the findings of studies in other countries with their different conditions to Nigeria is not possible.

MSC Project Topics in Accounting and Finance

EVALUATION OF THE IMPACT OF AUDIT COMMITTEES ON PERFORMANCE OF LISTED DEPOSIT MONEY BANKS IN NIGERIA

Department: Accounting and Finance (M.Sc)

Format: MS Word

Chapters: 1 - 5, Preliminary Pages, Abstract, References, Appendix.
Delivery: Email

No. of Pages: 85

NB: The Complete Thesis is well written and ready to use. 

Price: 10,000 NGN

In Stock

Buy Now

Our Customers are Happy!!!

See What Some of Our Customers are Saying About Us