Firm-Specific Factors Affecting Financial Performance of Insurance Companies in Nepal

Abstract

This study aimed at determining the relationship between firm-specific factorsaffecting the financial performance of insurance companies in Nepal.The study wasbased on descriptive and causal-comparative research designs. The descriptiveresearch design has been fact-finding and searching for adequate information aboutthe fundamental issues associated with variables affecting financial performance ofinsurance companies in Nepal. Moreover, this study also emphasizes on cause andeffect relationship between firm-specific factors and its impact financial performanceofinsurance companies in Nepal. This study is based on the secondarydata which aregathered from 8insurance companies in Nepal with 56 total numbers of observationsfor the study period 2010/11-2016/17. The main sources of data are official website ofconcern insurance companies, companies’ profiles, annual reports of insurancecompanies and supervision reports published by Bema-Samiti.Collected data wasanalyzed using Statistical Package for Social Scientists. The conclusion of the study is that leverage, size and liquidity playgreater role infactors affecting the financial performance of insurance companies in Nepal. Theresult revealed that the beta coefficient for leverage and liquidity of a company arenegative. It indicates that leverage and age have negative impact on financialperformance (ROA and ROE). Thebeta coefficient for size on the other hand ispositive. It indicates that positive impact on return on financial performance (ROAand ROE) where beta coefficient is significant.However, the result of the study alsoconcluded that there is no significant relationship between age of the company andgrowth of the premium on the profitability of insurance companies in Nepal. The findings of the study recommend leverage is negatively related with performanceso, insurance companiesshould minimize the debt amount by utilizing mostof theirinternal sources. Sizeof the company is positiverelated with financial performance.So, consideration of increasing the company assets is an important factor as it positively influences its performance. Greater attention should be paid on liquidity ratio because it negatively affects the financial performance. So, the insurancecompanies should be more concerned with maintaining optimum level of currentassets and their proper utilization.