Capital Structure and Profitability of Insurance Firms in Nigeria

Abstract

The purpose of the study is to assess the effects of capital structure on the profitability of insurance companies in Nigeria from 2015 to 2021. Exploratory and desk research designs were adopted. Judgmental sampling technique was adopted to select 20 companies from the population as the study sample. Secondary data were sourced and obtained from the annual reports of the respective insurance companies studied, which covered the seven-year period from 2015 to 2021. The study adopted descriptive and inferential approaches to analyse data collected. The descriptive statistics employed are the mean, median, standard deviation skewness and kurtoses. The inferential tool employed was the fixed/random effect panel regression test. The study finds that equity capital and firm size have significant positive effects on both ROA and ROE. On the other hand, debt capital has insignificant negative and significant positive effects on ROA and ROE, respectively, while debt-to-equity ratio has insignificant positive but significant negative effects on ROA and ROE, respectively. Thus, a good mix of equity and debt capital will promote sound business operation and improve performance. Findings of this study will expose insurance industry players to some basic capital structure management issues and challenges. Additionally, findings of the study will have the potential of improving the effectiveness and efficiency of managers of insurance and other firms in the management of capital structure.