The Impact of the Corporate Governance Mechanisms on Insurance Risk: Perspective from Insurance Industry

Abstract

This study examined the correlation between corporate governance mechanisms and insurance risk in Ethiopian insurance companies. The study employed various multivariate regression approaches, including fixed effects, random effects models, and two-step system GMM. The study analyzed 136 observations from 17 insurance firms, with one omitted due to lack of data. The research used two regression models to examine the link between corporate governance mechanisms and insurance risk. Having independent directors on the board was discovered to have a notable and unfavorable influence on operational risk, whereas the size of the board did not impact operational or liquidity risk. The frequency of board meetings did not show a significant relationship with operational risk, but it did have a notable positive correlation with liquidity risk. Audit committees were found to have a negative and significant influence on both operational and liquidity risk. Gender diversity on the board had an insignificant but negative effect on insurance risk, mainly operational risk. Overall, the study emphasized the importance of independent directors and audit committees in managing risk in Ethiopian insurance companies. This research provides valuable insights for academic policymakers, such as the National Bank of Ethiopia, insurance companies, and other organizations.