| Title : | Impact of capital structure on financial performance of Nepalese insurance companies | | Material Type: | printed text | | Authors: | Manisha Mahato, Author | | Publication Date: | 2018 | | Pagination: | 100p. | | Size: | GRP/Thesis | | Accompanying material: | 11/B | | Languages : | English | | Descriptors: | Capital market
| | Class number: | 332.041 | | Abstract: | Financial sector is the backbone of economy of a country. It works as a facilitator for achieving sustained economic growth through providing efficient monetary intermediation. A strong financial system promotes investment by financing productive business opportunities, mobilizing savings, efficiently allocating resources and makes easy the trade of goods and services. Several studies (McKinnon, 1973; Levine, 1997) have reported that the efficacy of a financial system to reduce information and transaction costs plays an important role in determining the rate of savings, investment decisions, technological innovations and hence the rate of economic growth.
Insurance companies provide unique financial services to the growth and development of every economy. Such specialized financial services range from the underwriting of risks inherent in economic entities and the mobilization of large amount of funds through premiums for long term investments. The risk absorption role of insurers promotes financial stability in the financial markets and provides a sense of peace to economic entities. The insurance companies’ ability to cover risk in the economy hinges on their capacity to create profit or value for their shareholders. A well developed and evolved insurance industry is a boon for economic development as it provides long- term funds for development (Agiobenebo and Ezirim, 2002).
This study examines the impact of capital structure on financial performance of Nepalese insurance companies. Return on assets and earnings per share are the dependent variables. The independent variables are total debt ratio, equity to total assets, leverage, firm size, liquidity ratio, assets tangibility and inflation. This study is based on secondary data of 14 Nepalese insurance companies 2007/08 to 2015/16, leading to a total of 126 observations. The data are collected from the annual report of selected insurance companies and annual report published by Rastriya Beema Samiti. The regression models are estimated to test the significance and impact of capital structure on financial performance of Nepalese insurance companies.
The results show that there is a positive relationship of total debt ratio, equity to total assets, leverage, assets tangibility and inflation with return on assets. It indicates that increase in total debt ratio, equity to total assets, leverage, assets tangibility and inflation leads to increase in return on assets. However, firm size and liquidity have negative relationship with return on assets which indicates that increase in firm size and liquidity leads to decrease in return on assets. Similarly, the study reveals that equity to total assets, leverage, firm size and liquidity have positive relationship with earnings per share. It indicates that increase in equity to total assets, leverage, firm size and liquidity leads to increase in earnings per share. However, total debt ratio, assets tangibility and inflation are negatively related to earnings per share. It indicates that increase in total debt ratio, assets tangibility and inflation leads to decrease in earnings per share. The regression results also show that the beta coefficients are positive for total debt ratio, equity to total assets, leverage, assets tangibility and inflation with return on assets of Nepalese insurance companies. However, the beta coefficients are negative for firm size and liquidity. Yet, the beta coefficient is significant only equity to total assets at 5 percent level.
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Impact of capital structure on financial performance of Nepalese insurance companies [printed text] / Manisha Mahato, Author . - 2018 . - 100p. ; GRP/Thesis + 11/B. Languages : English | Descriptors: | Capital market
| | Class number: | 332.041 | | Abstract: | Financial sector is the backbone of economy of a country. It works as a facilitator for achieving sustained economic growth through providing efficient monetary intermediation. A strong financial system promotes investment by financing productive business opportunities, mobilizing savings, efficiently allocating resources and makes easy the trade of goods and services. Several studies (McKinnon, 1973; Levine, 1997) have reported that the efficacy of a financial system to reduce information and transaction costs plays an important role in determining the rate of savings, investment decisions, technological innovations and hence the rate of economic growth.
Insurance companies provide unique financial services to the growth and development of every economy. Such specialized financial services range from the underwriting of risks inherent in economic entities and the mobilization of large amount of funds through premiums for long term investments. The risk absorption role of insurers promotes financial stability in the financial markets and provides a sense of peace to economic entities. The insurance companies’ ability to cover risk in the economy hinges on their capacity to create profit or value for their shareholders. A well developed and evolved insurance industry is a boon for economic development as it provides long- term funds for development (Agiobenebo and Ezirim, 2002).
This study examines the impact of capital structure on financial performance of Nepalese insurance companies. Return on assets and earnings per share are the dependent variables. The independent variables are total debt ratio, equity to total assets, leverage, firm size, liquidity ratio, assets tangibility and inflation. This study is based on secondary data of 14 Nepalese insurance companies 2007/08 to 2015/16, leading to a total of 126 observations. The data are collected from the annual report of selected insurance companies and annual report published by Rastriya Beema Samiti. The regression models are estimated to test the significance and impact of capital structure on financial performance of Nepalese insurance companies.
The results show that there is a positive relationship of total debt ratio, equity to total assets, leverage, assets tangibility and inflation with return on assets. It indicates that increase in total debt ratio, equity to total assets, leverage, assets tangibility and inflation leads to increase in return on assets. However, firm size and liquidity have negative relationship with return on assets which indicates that increase in firm size and liquidity leads to decrease in return on assets. Similarly, the study reveals that equity to total assets, leverage, firm size and liquidity have positive relationship with earnings per share. It indicates that increase in equity to total assets, leverage, firm size and liquidity leads to increase in earnings per share. However, total debt ratio, assets tangibility and inflation are negatively related to earnings per share. It indicates that increase in total debt ratio, assets tangibility and inflation leads to decrease in earnings per share. The regression results also show that the beta coefficients are positive for total debt ratio, equity to total assets, leverage, assets tangibility and inflation with return on assets of Nepalese insurance companies. However, the beta coefficients are negative for firm size and liquidity. Yet, the beta coefficient is significant only equity to total assets at 5 percent level.
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