THE EFFECTS OF CORPORATE GOVERNANCE ON PERFORMANCE OF INSURANCE FIRMS IN GHANA

ABSTRACT

The main aim of the study is to determine the effects of Corporate Governance on efficiency and productivity performance of insurance firms in Ghana. The study employed a panel data of fourteen (14) life insurers and fifteen (15) non-life insurers to assess the efficiency and productivity of insurers in Ghana between the years from 2005 to 2014. Apart from the static efficiency measure, the study assessed the dynamic productivity of the insurance firms by using the Cost Malmquist Index to incorporate the time effect resulting in efficiency changes overtime. The study equally compared the efficiency and productivity of life insurers and non-life insurers and also examined the effect of corporate governance mechanisms on insurers’ efficiency and productivity. The study found that there has been an average a 3% cost productivity growth in the Ghanaian insurance industry. Productivity growth peaked between 2008 and 2009 at 43% cost productivity growth. This productivity growth in the industry was driven mainly by managerial efficiency rather than technological growth. The study also found that life insurers were more productive than the non-life insurers, which can be attributed to some form of economies of scale they were enjoying. The study found corporate governance to affect both insurance efficiency and cost productivity of insurance firms in Ghana. Whereas larger board size is found to improve both cost efficiency and cost productivity, a large proportion of directors with finance expertise negatively impact on the cost efficiency and productivity of the industry. Also, a highly independent board reduces cost efficiency, but not cost productivity. The study recommends for managers and policy makers of non-life insurers to adopt policies that will position them to benefit from technological spillovers, whereas the life insurers leverage the managerial expertise to improve the firm to drive productivity growth.