The Impact of Corporate Governance on Firm Performance: A study on Selected Insurance Companies in Ethiopia

Abstract

The core aim of this study is to examine the relationship between corporate governance and the firm performance of selected Ethiopian insurance firms. To achieve the objectives of the study, the data were collected from a sample of 10 insurance companies for the financial year covering 2008 to 2012. Variables such as board size, board composition, firm size, board gender diversity and leverage was considered as predictors of the firm performance that was measured employing the return on equity (ROE). Secondary data were collected using documentary information from company annual financial statements and the data were analyzed using a panel data regression analysis by using STATA 11. The regression result shows that board gender diversity, firm size and leverage positively influence the financial performance of selected insurance firms in Ethiopia and they are significant based on return on equity (ROE); whereas board size and board composition have statistically insignificant impact on financial performance, but board size influence negatively and board composition influence positively the financial performance of selected insurance firms in Ethiopia. The study recommended that the insurance industries encourage women to participate in corporate top position or in the board of directors to enhance financial performance and attention should be given to increase total assets of the insurance firms to improve financial performance.