The Determinants of Insurance Firm’s Profitability in Tanzania: An Empirical Investigation
Keywords:
return on assets, return on equity, gross domestic product, profitability, panel data models
Abstract
This paper sought to analyze some of the supposed determinants of profitability for insurance firms in Tanzania. Though the success of insurance companies has been linked to the accessibility of financial services by various scholars, yet the way profitability of companies influence success of firms has not been well explored. To undertake the study 10 insurance companies were involved out of 25 general insurance companies operating in Tanzania for 10 years from 2008 to 2017. The data was obtained from financial statements given on TIRA Report and some of them from documentary review. The paper carried out preliminary test of panel unit root to check for stationarity of variables. The appropriate fixed and random effect model test was employed to determine the fitness of the model using the Hausman specification test. Age of the firm found to be statistically influence profit of a company at 5% level while claims cost found to be statically significant at 1% level. Size of a company was found to have no significant contribution to the firms’ profitability. It is therefore recommended that the government and the regulator should smoothen rules, regulations and procedures so that penetration of insurance business to be high and also insurance company should have proper management of claims so that they can reduce expenses and increase profit of a company.
References
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Maja, P., Ivica, P., & Marijana, Ć. (2017). The Influence of Age on Firm Performance, Evidence from the Croatian Food Industry. Journal of Eastern Europe Research in Business and Economics, 2017, 1-9.
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Mehari, D., & Aemiro, T. (2013). Firm Specific Factors that Determine Insurance Companies’ Performance in Ethiopia. European Scientific Journal, 9, 245–255.
Ofuan, J., Ilaboya, K., & Izien, F. O. (2016). Firm Age, Size and Profitability Dynamics: A Test of Learning by Doing and Structural Inertia Hypotheses. Business and Management Research, 5(1). https://doi.org/10.5430/bmr.v5n1p29
Ortyński, K. (2016). Determinants of Profitability of General Insurance Companies Performance in Poland. Central European Review of Economics and Finance, 12(2), 53–66.
Papadogonas, E. M. (2007). Financial performance of large and small firms: Evidence from Greece. International Journal of Financial Service Management, 2(1/2), 14-20. https://doi.org/10.1504/IJFSM.2007.011668
Pervan, M., & Pavid, K. (2010). Determinants of Insurance Companies’ Profitability in Croatia. The Business Review Cambridge, 16(1), 231-238.
Shaheen, S., & Malik, Q. A. (2012). The Impact of Capital Intensity, Size of Firm and Profitability on Debt Financing in Textile Industry in Pakistan. Interdisciplinary Journal of Contemporary Research in Business, 3(10), 1061-1066.
Tajudeen, O. (2014). Effect of Claim Cost on Insurers’ Profitability in Nigeria. International Journal of Business and Commerce, 3(10).
Velnampy, T., & Nimalathasan, B. (2010). Firm Size on Profitability: A Comparative Study of Bank of Ceylon and Commercial Bank of Ceylon Ltd in Sri Lanka. Global Journal of Management and Business Research, 10(2), 96–100.
Vijayakumar, A., & Tamizhselvan, P. (2010). Corporate Size and Profitability: An Empirical Analysis. Journal for Bloomers of Research, 3(1), 44-53.
Wasike, N., & Emba, A. (2016). Determinants of Profitability in the Insurance Sector in Kenya: A Case of Composite Insurance Companies. Journal of Humanities and Social Science, 21(10), 10-24. https://doi.org/10.9790/0837-2110011024
Akinyomi, O. J., & Olagunju, A. (2013). Effect of Firm Size on Profitability: Evidence from Nigerian Manufacturing Sector. Prime Journal of Business Administration and Management, 3(9), 1171-1175.
AlGhusin, N. (2015). The Impact of Financial Leverage, Growth, and Size on Profitability of Jordanian Industrial Listed Companies. Research Journal of Finance and Accounting, 6(16), 86–93.
Ammar, A., Hanna, A., Nordheim, E., & Russell, J. (2003). Indicator Variables Model of Firm’s Size-Profitability Relationship of Electrical Contractors Using Financial and Economic Data. Journal of Construction Engineering and Management, 129(2). https://doi.org/10.1061/(ASCE)0733-9364(2003)129:2(192)
Asimakopoulos, I., Samitas, A., & Papadogonas, T. (2009). Firm Specific and Economy Wide Determinants of Firm Profitability: Greek evidence using Panel Data. Managerial Finance Journal, 35(11), 930–939. https://doi.org/10.1108/03074350910993818
Becker T., Guiard, B., Thornton, N., Zurfall, N., Stroud, D., Wiedemann, N., & Pfanner, N. (2010). Assembly of the mitochondrial protein import channel: role of Tom5 in two-stage interaction of Tom40 with the SAM complex. Molecular Biology of the Cell, 21(18), 3106-3113. https://doi.org/10.1091/mbc.e10-06-0518
Berhe, T. A., & Kaur, J. (2017). Determinants of insurance companies profitability: Analysis of insurance sector in Ethiopia. International Journal of Research in Finance and Marketing (IJRFM), 7(4), 124-137.
Boadi, A., & Lartey, K. (2013). Determinants of Profitability of Insurance Firms in Ghana. International Journal of Business and Social Research, 3(3), 43-50.
Burca, A., & Batrinca, G. (2014). The Determinants of Financial Performance in the Romanian Insurance Market. International Journal of Academic Research in Accounting, Finance and Management Sciences, 4(1), 299–308. https://doi.org/10.6007/IJARAFMS/v4-i1/637
Coad, A., Segarra, A., & Teruel, M. (2013). Like milk or wine does performance improve with age?. Structural Change and Economic Dynamics, 24, 173-189. https://doi.org/10.1016/j.strueco.2012.07.002
Derbali, A., & Jamel, L. (2019). Determinants of the Performance of Insurance Companies in Tunisia. Risk and Financial Management, 1(1), 1-7. https://doi.org/10.30560/rfm.v1n1p1
Dey, N. B., Adhikari, K., & Bardhan, M. (2015). Factors Determining Financial Performance of Life Insurance Companies of India: An Empirical Study. EPRA International Journal of Economic and Business Review, 3(8), 42-48.
Doğan, M. (2013). Does Firm Size Affect the Firm Profitability? Evidence from Turkey. Research Journal of Finance and Accounting, 4, 53–59.
Ghafoorifard, M., Sheykh, B., Shakibaee, M., & Joshaghan, S. (2014) Assessing the Relationship between Firm Size, Age and Financial Performance in Listed Companies on Tehran Stock Exchange. International Journal of Scientific Management and Development, 2(11), 631-635.
Hadri, K. (2000). Testing for Stationarity in Heterogeneous Panel Data. Econometrics Journal, 3, 148-161. https://doi.org/10.1111/1368-423X.00043
Hailegebreal, D. (2016). Macroeconomic and Firm Specific Determinants of Profitability of Insurance Industry in Ethiopia. Global Journal of Management and Business, 16(7).
Halil, E. A., & Hassan, A. (2012). The Effect of Firm Size on Profitability: An Empirical Icelandic Funds. Bitrost Journal of Social Sciences, 1, 33-42.
Horera, I. J. (2019). Factor Affecting Profitability of Insurance Firms in Tanzania. MSc (Finance and Investment) Dissertation, Institute of Finance Management, November.
Jonsson, B. (2007). Does the Size Matter? The relationship between Size and Profitability of Icelandic Firms. Bifrost Journal of Social Science, 1, 43–55.
Kaukab, A. A. (2019). Relationship between Firm Size and Profitability, Investigation from Textile Sector of Pakistan. International Journal of Information, Business and Management, 11(2).
Kaya, O. E. (2015). The Effects of Firm-Specific Factors on the Profitability of Non- Life Insurance Companies in Turkey. International Journal of Financial Studies, 3, 510-529. https://doi.org/10.3390/ijfs3040510
Kipesha, E. (2013). Impact of Size and Age on Firm Performance, Evidences from Microfinance Institutions in Tanzania. Research Journal of Finance and Accounting, 4(5), 105-116.
Kozak, S. (2011). Determinants of Profitability of Non-Life Insurance Companies in Poland during Integration with the European Financial System. Electronic Journal of Polish Agricultural Universities, 14(1).
Kramaric, T. P., Miletic, M., & Pavic, I. (2017). Profitability Determinants of Insurance Markets in Selected Central and Eastern European Countries. International Journal of Economic Sciences, 6(2), 100-123. https://doi.org/10.20472/ES.2017.6.2.006
Lee, J. (2009). Does Size matter in Firm Performance? Evidence from U.S Public Firms. International Journal of Economics and Business, 16(2), 189-20. https://doi.org/10.1080/13571510902917400
Maja, P., & Josipa, V. (2012). Influence of Firm Size on Business Success. Croatian Operational Research Review (CRORR), 3, 213-224. https://doi.org/10.5171/2017.618681
Maja, P., Ivica, P., & Marijana, Ć. (2017). The Influence of Age on Firm Performance, Evidence from the Croatian Food Industry. Journal of Eastern Europe Research in Business and Economics, 2017, 1-9.
Majumdar, S. K. (1997). Impact of Size and Age on firm-level Performance: Some Evidence from India. Review of Industrial Organization, 12, 231-241. https://doi.org/10.1023/A:1007766324749
Malik, H. (2011). Determinants of Insurance Companies’ Profitability: An Analysis of Insurance Sector of Pakistan. Academic Research International, 1(3), 315- 321.
Mehari, D., & Aemiro, T. (2013). Firm Specific Factors that Determine Insurance Companies’ Performance in Ethiopia. European Scientific Journal, 9, 245–255.
Ofuan, J., Ilaboya, K., & Izien, F. O. (2016). Firm Age, Size and Profitability Dynamics: A Test of Learning by Doing and Structural Inertia Hypotheses. Business and Management Research, 5(1). https://doi.org/10.5430/bmr.v5n1p29
Ortyński, K. (2016). Determinants of Profitability of General Insurance Companies Performance in Poland. Central European Review of Economics and Finance, 12(2), 53–66.
Papadogonas, E. M. (2007). Financial performance of large and small firms: Evidence from Greece. International Journal of Financial Service Management, 2(1/2), 14-20. https://doi.org/10.1504/IJFSM.2007.011668
Pervan, M., & Pavid, K. (2010). Determinants of Insurance Companies’ Profitability in Croatia. The Business Review Cambridge, 16(1), 231-238.
Shaheen, S., & Malik, Q. A. (2012). The Impact of Capital Intensity, Size of Firm and Profitability on Debt Financing in Textile Industry in Pakistan. Interdisciplinary Journal of Contemporary Research in Business, 3(10), 1061-1066.
Tajudeen, O. (2014). Effect of Claim Cost on Insurers’ Profitability in Nigeria. International Journal of Business and Commerce, 3(10).
Velnampy, T., & Nimalathasan, B. (2010). Firm Size on Profitability: A Comparative Study of Bank of Ceylon and Commercial Bank of Ceylon Ltd in Sri Lanka. Global Journal of Management and Business Research, 10(2), 96–100.
Vijayakumar, A., & Tamizhselvan, P. (2010). Corporate Size and Profitability: An Empirical Analysis. Journal for Bloomers of Research, 3(1), 44-53.
Wasike, N., & Emba, A. (2016). Determinants of Profitability in the Insurance Sector in Kenya: A Case of Composite Insurance Companies. Journal of Humanities and Social Science, 21(10), 10-24. https://doi.org/10.9790/0837-2110011024
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2020-12-09
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