Corporate Governance Mechanisms and Firm Performance: The Case of Ethiopian Insurance Industry

Abstract

In this study the effects of board characteristics (specifically proportion of outsiders in the board, board size, CEO-Chairman duality, and board meeting frequency), debt policy, and dividend policy are investigated in the Ethiopian context using two theories of corporate governance, which are agency theory and stewardship theory. Financial performance is measured using return on assets and return on equity. The study used panel data and Pooled OLS regression to analyze the relationship between corporate governance mechanisms and firm performance using a data set of 8 insurance companies of Ethiopia over the period 2008-2012. The results show that proportion of outside directors, board size, debt ratio, and ownership have a significant negative effect on performance of insurance companies. However, boards meeting frequency, firm size and firm age, are identified to have a significant positive impact on firm performance. Dividend policy have no effect on firm performance while the effect of CEO-Chairman Duality remains untested since it is not practiced in any one of the insurance companies.