Corporate governance mechanisms and efficiency of insurance firms: evidence from an emerging market

Figures & data

Table 1. Efficiency analysis inputs and outputs variables

Variable	Symbol	Measure
Input variables
Labour and business services	LBS	This is proxied as management expenses and commissions paid.
Capital from debt	CD	This is proxied using total liabilities.
Owners capital	OC	This is the end of the period overall equity capital.
Output variables
Net earned premiums	NEP	The difference between written premiums and the direct costs related to the insurance policies.
Income from investments	INC	Earnings from financial instruments.

Table 2. Description of indicators of the study

Indicator	Symbol	Measure
Dependent Variables
Bias Corrected Technical efficiency	BCTE	Bias modified Technical efficiency DEA scores obtained through Simar and Wilson (2007) procedure
Independent variables
Size of the board	BS	Overall numerical quantity of the board membership
Board independence	BI	Numerical fraction of autonomous to full membership of the board
Chief Executive Officer Duality	CEOD	This is “1” when the COB also doubles as the CEO, or else “0”
Gender diversity	GD	Overall numerical quantity of females divided by full board membership
Intensity of Board Activity	IBA	Total annual meetings held by the full board
Audit quality	AQ	This is “1” when the insurer’s auditor is any of the “4” large global audit firms, and else “0”
Control variables
Age of the firm	FG	Numeric value representing years from the incorporation of the insurer
Firm size	FS	Numeric value expressing total assets of the insurer as natural logarithm
Leverage of the firm	LEV	Numeric value expressing liabilities as a portion of all assets of the firm
Reinsurance	REIN	This is “1” for firms offering reinsurance services and 0 elsewhere
Life	LIF	This is “1” for life insurance firms only and 0 elsewhere
Macroeconomic control variables
GDP	GDP	Numeric value expressing Annual growth rate of GDP
Inflation	INF	Numeric value expressing changes in consumer price index annually

Table 3. Summary of inputs and outputs data sets

Variable	Average	Median	Min	Max	Std. Dev.	Obs
Inputs (KES.)
Labour and business services	941,467	652,691	2,169	5,882,697	967,988	424
Debt capital	7,365,388	2,921,548	48,877	90,000,000	13,900,000	424
Total Equity capital	2,389,602	1,351,721	23,463	27,400,000	3,412,889	424
Outputs (KES.)
Net earned premiums	2,091,381	1,141,775	0.00	17,500,000	2,561,622	424
Investments income	165,361	1,816	0.00	3,714,939	349,566	424

Table 4. Average Kenyan insurer efficiency for the the period 2013–2020

Year	Average TE,%	Average PTE, %	Average SE, %
2013	38.99	51.81	75.06
2014	39.24	52.04	76.14
2015	30.02	44.36	71.50
2016	42.14	53.44	77.42
2017	31.18	40.13	75.86
2018	30.84	39.56	76.71
2019	33.68	41.62	79.41
2020	32.31	40.40	79.20
Average	34.80	45.42	76.41
Std. Dev.	24.29	24.36	29.12
Min	0.01	3.16	0.03
Max	100	100	100

Pure technical efficiency is represented by PTE; Technical efficiency is represented by TE; Scale efficiency is represented by SE

Table 5. Average efficiency scores per insurer for the study duration 2013–2020

DMU	Average TE,%	Average PTE,%	Average SE,%	DMU	Average TE,%	Average PTE,%	Average SE,%
DMU 1	79.87	81.76	97.48	DMU 28	30.51	38.57	79.20
DMU 2	40.75	43.74	92.13	DMU 29	37.65	44.54	89.95
DMU 3	60.97	62.55	98.27	DMU 30	18.19	18.87	95.33
DMU 4	51.86	74.08	70.45	DMU 31	24.91	26.46	92.63
DMU 5	8.73	23.77	37.63	DMU 32	40.81	42.50	92.06
DMU 6	54.18	55.98	96.90	DMU 33	52.44	55.84	92.65
DMU 7	22.91	23.13	99.13	DMU 34	20.32	53.29	37.30
DMU 8	6.93	54.96	14.38	DMU 35	39.10	63.69	60.57
DMU 9	54.34	72.06	80.62	DMU 36	29.37	31.19	69.89
DMU 10	18.14	19.58	88.01	DMU 37	9.67	11.19	78.14
DMU 11	46.89	51.93	89.49	DMU 38	50.81	54.32	90.40
DMU 12	23.98	58.14	24.35	DMU 39	35.09	37.28	85.39
DMU 13	25.31	35.62	64.69	DMU 40	55.40	55.64	99.53
DMU 14	34.08	63.61	52.16	DMU 41	9.47	45.00	18.57
DMU 15	69.80	70.86	98.28	DMU 42	45.45	48.83	92.41
DMU 16	45.81	50.00	91.84	DMU 43	16.14	17.64	91.19
DMU 17	55.81	61.07	83.95	DMU 44	28.70	35.23	81.49
DMU 18	56.56	58.43	96.36	DMU 45	24.53	29.98	82.67
DMU 19	44.76	46.09	96.63	DMU 46	13.87	33.69	42.54
DMU 20	44.76	46.09	96.63	DMU 47	36.36	47.11	74.84
DMU 21	29.61	31.33	94.54	DMU 48	61.91	63.82	94.69
DMU 22	11.10	60.80	21.19	DMU 49	19.78	24.64	74.13
DMU 23	35.63	38.99	89.15	DMU 50	15.46	52.50	22.76
DMU 24	16.51	66.77	22.15	DMU 51	22.14	25.71	80.72
DMU 25	44.70	49.13	93.15	DMU 52	45.57	58.92	81.17
DMU 26	54.94	64.77	85.17	DMU 53	12.20	15.66	77.00
DMU 27	9.67	9.89	97.83	Average	34.80	45.42	76.41

DMU denotes decision-making unit, Pure technical efficiency is represented by PTE; Technical efficiency is represented by TE; Scale efficiency is represented by SE

Table 6. Summary of independent and control variables data sets

Variable	Average	Median	Minimum	Maximum	Std. Dev.	Obs
Corporate Governance proxies
Board size	8.125	8	5	12	1.838	424
Board independence	0.795	0.857	0.250	1	0.161	424
Chief Executive Officer Duality	0.002	0	0	1	0.049	424
Gender diversity	0.184	0.167	0	0.5	0.122	424
Intensity of Board Activity	4.625	4	2	22	2.154	424
Audit Quality	0.868	1	0	1	0.339	424
Firm specific control variables
Firm age	39.406	35	2	100	26.08	424
Firm size	15.359	15.303	12.387	18.454	1.174	424
Leverage	0.659	0.639	0.172	0.979	0.174	424
Life	0.415	0	0	1	0.493	424
Reinsurance	0.1132	0	0	1	0.317	424
Macroeconomic control variables
GDP growth	4.013	4.6	−0.3	5.6	1.740	424
Inflation	6.112	6	4.7	8	0.988	424

Table 7. Two-stage bootstrapping simar and Wilson DEA regression analysis results

Simar & Wilson analysis2007) eff.
Model	Coeff. for				Coeff.
Regressors	Model 1	Std. Er	z	P>|z|	Model 2	Std. Er	z	P>|z|
Β0	−0.0280	0.0573	−0.49	0.625	0.0576	0.1325	0.43	0.664
BS	0.0100**	0.0048	2.08	0.038	−0.0097*	0.0059	−1.66	0.096
BI	0.1108**	0.0387	2.06	0.040	0.1026*	0.0599	1.71	0.087
CEOD	−0.0820	0.1609	−0.51	0.610	−0.1599	0.1855	−0.86	0.388
GD	0.1490**	0.0674	2.21	0.027	0.14073**	0.0714	1.97	0.017
IBA	−0.0101**	0.0041	−2.47	0.014	−0.0043	0.0045	−0.97	0.333
AQ	0.0992***	0.0239	4.15	0.000	0.0873***	0.0265	3.29	0.001
FAGE					−0.0003	0.0003	−1.02	0.307
FSIZE					0.0192**	0.0095	2.01	0.045
LEV					−0.2221***	0.0731	−3.04	0.002
Reins					−0.1468***	0.0219	−6.71	0.000
LI					−0.0203	0.0349	−0.58	0.562
GDP					0.00239	0.0049	−0.48	0.628
INF					0.00072	0.0088	0.08	0.935
Sigma	0.1631***	0.0056	29.31	0.000	0.1727***	0.0060	28.61	0.000
Number of Observations	424				424
Wald chi^2	35.18***				140.24***
Prob > chi^2	0.00				0.000
Number of Bootstrap. reps	2000				1000

Β₀ is the constant, BS signifies Size, BI signifies Independence, CEOD signifies Chief Executive Officer Duality, GD denotes Gender diversity, IBA denotes Intensity of Board Activity, AQ is Audit quality, FAGE signifies age of the firm, FSIZE denotes Firm size, LEV signifies Leverage, LIF denotes “1” for life insurance firms only and 0 elsewhere, REIN denotes 1 for reinsurance companies and 0 elsewhere, GDP is annual GDP growth rate and INF denotes inflation. ***, ** and * signify significant p-values for Simar and Wilson (2007) Bootstrapped truncated regression at 0.01, 0.05 and 0.1, correspondingly.

Table 8. DEA censored Tobit regression analysis results

Censored Tobit regression
Model	Coeff.				Coeff.
Regressors	Model	SE	t	P>|t|	Model	SE	t	P>|t|
Β0	0.1081	0.0696	1.55	0.121	0.3006*	0.1727	1.74	0.083
BS	0.0031	0.0133	0.23	0.818	−0.0053	0.0122	−0.43	0.666
BI	0.0169	0.0112	1.50	0.134	0.0111	0.0106	1.05	0.293
CEOD	−0.1615	0.2469	−0.65	0.513	−0.2579	0.2213	−1.17	0.245
GD	0.17314*	0.0998	1.74	0.083	0.1250	0.0898	1.39	0.165
IBA	−0.0079	0.0059	−1.32	0.186	−0.0035	0.0056	−0.61	0.540
AQ	0.12879***	0.0545	3.63	0.00	0.1166***	0.0321	3.63	0.000
FAGE					−0.0004	0.0004	−0.86	0.388
FSIZE					−0.0069	0.0118	−0.59	0.559
LEV					0.1442	0.0908	1.59	0.113
Reins					0.1292***	0.0423	3.05	0.002
LI					−0.2375***	0.0269	−8.8	0.000
GDP					0.0005	0.0061	0.07	0.941
INF					0.0031	0.0107	0.29	0.775
Variance	0.0583	0.0041			0.0458	0.0032
Number of Observations	424				424
Log likelihood	−16.591				32.338
LR chi^2	23.75				121.61
Prob > chi^2	0.0006				0.0000
Pseudo R^2	0.4172				2.1360

Β₀ is the constant, BS signifies Size, BI signifies Independence, CEOD signifies Chief Executive Officer Duality, GD denotes Gender diversity, IBA denotes Intensity of Board Activity, AQ is Audit quality, FAGE signifies age of the firm, FSIZE denotes Firm size, LEV signifies Leverage, LIF denotes “1” for life insurance firms only and 0 elsewhere, REIN denotes 1 for reinsurance companies and 0 elsewhere, GDP is annual GDP growth rate and INF denotes inflation. ***, ** and * signify significant p-values for the Censored Tobit regression at 0.01, 0.05 and 0.1, correspondingly.

Table 9. DEA truncated regression results

Truncated regression (trunreg)
Model	Coeff.				Coeff.
Regressors	Model 1	Std. Error	z	P>z	Model 2	Std. Error	z	P>z
Β0	0.0357**	0.202	−2.28	0.023	−0.0268	0.249	−0.11	0.914
BS	0.0357***	0.013	2.65	0.008	0.0027	0.009	0.28	0.778
BI	0.1742	0.149	1.17	0.243	0.0873	0.098	0.88	0.376
CEOD	−0.6621	0.845	−0.78	0.433	−0.5739	0.496	−1.16	0.248
GD	0.3064*	0.185	1.66	0.098	0.1417	0.121	1.18	0.24
IBA	−0.0238*	0.013	−1.86	0.063	−0.010	0.008	−1.24	0.214
AQ	0.32493***	0.086	3.76	0.000	0.2319***	0.052	4.46	0.000
FAGE					−0.0006	0.001	−1.08	0.28
FSIZE					0.0121	0.016	0.74	0.458
LEV					−0.0308	0.125	−0.25	0.806
Reins					0.1151**	0.054	2.10	0.036
LI					−0.3771***	0.045	−8.29	0.000
GDP					0.0005	0.008	0.06	0.954
INF					0.0008	0.014	0.06	0.954
Sigma	0.3035	0.026	11.84	0.000	0.2257***	0.013	16.83	0.000
Number of Observations	413				413
Wald chi^2	21.29				106.56
Log likelihood	106.026				178.355
Prob > chi^2	0.0016				0.0000

Β₀ is the constant, BS signifies Size, BI signifies Independence, CEOD signifies Chief Executive Officer Duality, GD denotes Gender diversity, IBA denotes Intensity of Board Activity, AQ is Audit quality, FAGE signifies age of the firm, FSIZE denotes Firm size, LEV signifies Leverage, LIF denotes “1” for life insurance firms only and 0 elsewhere, REIN denotes 1 for reinsurance companies and 0 elsewhere, GDP is annual GDP growth rate and INF denotes inflation. ***, ** and * signify significant p-values for the truncated regression at 0.01, 0.05 and 0.1, correspondingly.

Table

Variable	1.	2.	3.	4.	5.	6.	7.	8.	9.	10.	11.	12.	13.
1. Board size	1
2. Board independence	0.3171***	1
	0.0000
3. CEO Duality	−0.0033	−0.1646***	1
	0.9458	0.0007
4. Gender diversity	−0.0201	−0.1784***	−0.0237	1
	0.6793	0.0002	0.6261
5. Intensity of Board Activity	0.3696***	0.1125**	−0.0141	0.1362***	1
	0.0000	0.0205	0.7719	0.0050
6. Audit quality	−0.1328***	−0.0923*	0.0190	−0.0171	−0.1716***	1
	0.0062	0.0577	0.6970	0.7260	0.0004
7. Firm age	−0.1253***	0.0687	−0.0026	0.0648	−0.0006	0.0628	1
	0.0098	0.1578	0.9570	0.1829	0.9907	0.1972
8. Firm size	0.3393***	0.3226***	−0.0040	−0.0212	0.3019***	0.0528	0.1829***	1
	0.0000	0.0000	0.9352	0.6637	0.0000	0.2779	0.0002
9. Leverage	−0.1893***	0.0736	−0.0193	−0.0977**	−0.0668	0.1102**	0.0985**	0.3700***	1
	0.0001	0.1302	0.6916	0.0444	0.1699	0.0233	0.0426	0.0000
10. Reinsurance	0.2677***	0.1399***	−0.0174	0.1331***	0.2975***	0.2124***	0.0993**	−0.0782	−0.4390***	1
	0.0000	0.0039	0.7213	0.0061	0.0000	0.0000	0.041	0.1079	0.0000
11. Life	−0.1460***	−0.0376	−0.0410	−0.0010	0.0667	−0.0672	0.2162***	0.0785	0.4579***	0.0616	1
	0.0026	0.4396	0.4002	0.9834	0.1702	0.1671	0.0000	0.1063	0.0000	0.2058
12. GDP growth	−0.0159	0.0022	−0.1206**	−0.0124	−0.0059	0.0156	−0.0377	−0.0664	−0.0343	−0.0000	0.0000	1
	0.7446	0.9644	0.0129	0.7987	0.9040	0.7483	0.4390	0.1721	0.4811	1.0000	1.0000
13. Inflation	−0.0559	−0.0100	−0.0351	−0.0338	−0.0971**	0.0148	−0.0343	−0.0563	0.0591	−0.0000	−0.0000	0.0735	1
	0.2503	0.8378	0.4709	0.4874	0.0457	0.7608	0.4814	0.2477	0.2243	1.0000	1.0000	0.1307

Note: *** p < 0.01, ** p < 0.05, * p < 0.1

Table

DMU	2013	2014	2015	2016	2017	2018	2019	2020	Average
DMU 1	0.6532463	0.8488488	0.890245	0.819138	1	0.912048	0.639999	0.625745	0.7987
DMU 15	0.5607185	0.5586465	0.827896	0.629082	0.610014	0.583513	0.814242	1	0.6980
DMU 48	0.7159528	0.2027685	0.519987	0.907655	0.612899	0.591753	0.633687	0.767945	0.6191
DMU 3	0.572563	0.8896908	0.448411	0.474779	0.594556	0.752175	0.580669	0.564642	0.6097
DMU 18	0.5527272	1	0.641801	0.437793	0.418147	0.424526	0.514234	0.535668	0.5656
DMU 17	0.506915	0.7152258	0.009981	1	0.776171	0.497234	0.427356	0.532269	0.5581
DMU 40	0.7794297	0.488709	0.418506	0.85124	0.410597	0.461635	0.456076	0.565469	0.5540
DMU 26	0.5467454	0.5198122	0.525961	0.592055	0.589058	0.478018	0.634438	0.508904	0.5494
DMU 9	0.5552332	0.6414202	0.583218	0.403504	0.479682	0.591213	0.611165	0.481694	0.5434
DMU 6	0.3779729	0.4909954	0.525322	1	0.437637	0.447899	0.454847	0.599977	0.5418
DMU 33	0.475511	0.3423104	0.405744	0.630386	0.596491	0.452444	1	0.292012	0.5244
DMU 4	0.505293	0.5548653	0.501434	0.561503	0.493381	0.49331	0.590902	0.448062	0.5186
DMU 38	0.4437215	0.350466	0.119247	0.571878	0.625542	0.637699	0.696934	0.619303	0.5081
DMU 11	0.3413199	0.3670703	0.551213	0.795896	0.424166	0.366784	0.447898	0.457166	0.4689
DMU 16	0.5161744	0.4790587	0.331878	0.577587	0.460277	0.476787	0.407488	0.415532	0.4581
DMU 52	0.5899663	0.6517007	0.486462	0.466369	0.322646	0.403993	0.351338	0.372864	0.4557
DMU 42	0.497037	0.691202	0.349561	0.577253	0.395678	0.386125	0.359493	0.379391	0.4545
DMU 19	0.5647537	0.6596339	0.517569	0.418079	0.459033	0.408581	0.193924	0.358923	0.4476
DMU 20	0.5647537	0.6596339	0.517569	0.418079	0.459033	0.408581	0.193924	0.358923	0.4476
DMU 25	0.6143516	0.5720592	0.500101	0.804712	0.276884	0.276126	0.274667	0.256703	0.4470
DMU 32	1	1	0.174338	0.117459	0.207472	0.215992	0.253509	0.296022	0.4081
DMU 2	0.434193	0.4543733	0.399353	0.366834	0.787222	0.301399	0.247137	0.269868	0.4075
DMU 35	0.2159398	0.2373691	0.235756	0.961894	0.322639	0.249507	0.576502	0.328427	0.3910
DMU 29	0.3743459	0.3868172	0.369424	0.545883	0.41305	0.341914	0.309023	0.271717	0.3765
DMU 47	0.2806347	0.2941358	0.277953	0.814054	0.235726	0.301583	0.421034	0.283838	0.3636
DMU 23	0.2181614	0.2143744	0.210999	0.394577	0.417855	0.44981	0.465936	0.478888	0.3563
DMU 39	1	0.0170136	0.349448	0.310405	0.173101	0.209492	0.273718	0.47435	0.3509
DMU 14	0.2420007	0.4292161	0.316268	0.235345	0.246998	0.270799	0.311789	0.674158	0.3408
DMU 28	0.2664563	0.2934934	0.291303	0.319464	0.294291	0.317817	0.332077	0.325625	0.3051
DMU 21	0.2956797	0.2530053	0.254443	0.635509	0.235459	0.270547	0.203583	0.220516	0.2961
DMU 36	0.0201981	0.1122476	0.010348	1	0.136792	0.058202	1	0.012105	0.2937
DMU 44	0.2534811	0.3084275	0.302082	0.286795	0.246882	0.266066	0.329724	0.302434	0.2870
DMU 13	0.7609064	0.1513543	0.167924	0.218788	0.161014	0.132628	0.138113	0.293916	0.2531
DMU 31	0.4950213	0.2785673	0.215708	0.313606	0.191281	0.172471	0.175175	0.150952	0.2491
DMU 45	0.3307551	0.4330782	0.185696	0.169063	0.171751	0.149957	0.257128	0.264729	0.2453
DMU 12	0.9832216	0.9127744	0.005743	0.003237	0.002794	0.001414	0.001633	0.007591	0.2398
DMU 7	0.2115448	0.1510641	0.280883	0.218685	0.224805	0.268101	0.23356	0.244477	0.2291
DMU 51	0.1341065	0.5178856	0.329774	0.293442	0.147968	0.101399	0.123582	0.123358	0.2214
DMU 34	0.475511	0.5389937	0.039543	0.075641	0.131729	0.059726	0.137533	0.166975	0.2032
DMU 49	0.216379	0.2304088	0.219179	0.228447	0.191971	0.005956	0.233902	0.255943	0.1978
DMU 30	0.2236387	0.0681346	0.168167	0.229053	0.208224	0.227213	0.17203	0.158616	0.1819
DMU 10	0.0567645	0.4012391	0.107526	0.42667	0.101944	0.109493	0.125449	0.121788	0.1814
DMU 24	0.1676833	0.1502054	0.104526	0.670529	0.048211	0.091444	0.044678	0.043445	0.1651
DMU 43	0.2731294	0.1075933	0.145307	0.124529	0.167232	0.153108	0.142166	0.178485	0.1614
DMU 50	0.0250321	0.1382218	0.309649	0.010562	0.010226	0.682204	0.041278	0.019446	0.1546
DMU 46	0.0891629	0.0013139	0.109338	0.095085	0.063663	0.288273	0.196286	0.266632	0.1387
DMU 53	0.2411163	0.1538947	0.103679	0.082796	0.092389	0.102232	0.127349	0.072226	0.1220
DMU 22	0.0113914	0.275671	0.020656	0.030147	0.000337	0.000148	0.259367	0.289998	0.1110
DMU 27	0.1278417	0.0579179	0.123358	0.079794	0.094784	0.092011	0.102186	0.096023	0.0967
DMU 37	0.0154954	0.0618916	0.250906	0.042687	0.037921	0.12764	0.120736	0.11625	0.0967
DMU 41	0.2014099	0.3238505	0.074777	0.017303	0.010519	0.059603	0.000105	0.070199	0.0947
DMU 5	0.0648488	0.1497298	0.065702	0.071522	0.065398	0.081058	0.098234	0.101634	0.0873
DMU 8	0.023468	0.0082812	0.01752	0.010049	0.240938	0.134501	0.115075	0.004654	0.0693
Average,%	0.3899	0.3924	0.3002	0.4214	0.3118	0.3084	0.3368	0.3231	0.3480

Simar, L., & Wilson, P. W. (2007). Estimation and inference in two-stage, semi-parametric models of production processes. Journal of Econometrics, 136(1), 31–64. https://doi.org/10.1016/j.jeconom.2005.07.009

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