Consolidation, Efficiency, and Corporate Performance of Insurance Companies in Nigeria

Abstract

Consolidation and efficiency are important factors that can impact the corporate performance of insurance firms. While consolidation can lead to economies of scale and increased market power, efficiency can enhance the effectiveness of governance and regulatory frameworks. However, there is a lack of research on the specific effects of these factors on the performance of insurance firms in Nigeria. This study therefore examined the nexus amongst consolidation, efficiency and corporate performance of insurance companies in Nigeria using panel regression analysis for the periods 2010 to 2014; 2015 to 2019; 2010 to 2019 for pre-merger, post-merger, and combined periods respectively. Data analysed were obtained from published financial statements of purposively selected insurance companies. Return on Asset (ROA), and Earning Per Share (EPS) are proxies of endogenous variables, while shareholder funds and expense ratio are exogenous variables for consolidation and efficiency respectively. Empirical findings from the study showed that shareholder funds exert negative and significant impact on ROA during the pre-merger periods (β=-0.48, P=0.04). Expense ratio exert negative but insignificant impact on ROA in the pre-merger periods (β=0.02, P=0.90). Findings from the post-merger periods showed that shareholder funds have positive but insignificant impact on ROA (β= 0.01, P=0.85). Expense ratio has negative but insignificant impact on ROA (β= - 0.026, P= 0.6024). Shareholder funds have positive but insignificant impact on EPS (β= 0.01, P= 0.20), while expense ratio has negative but insignificant impact on EPS (β= -0,003, P= 0.43). Furthermore, findings from the combined period showed that shareholder funds have positive and significant impact on ROA (β= 0.025, P= 0.05). Expense ratio has negative but insignificant on ROA ((β= - 0.04, P= 0.06). Shareholder funds have positive but insignificant impact on EPS (β= 0.001, P= 0.80), while expense ratio exert negative and significant impact on EPS ((β= - 0.005, P= 0.00)). It is therefore recommended that managers of merged or acquired insurance firms adopt robust cost cutting measure in order to enhance profitability.