THE EFFECT OF MARKET SHARE ON PROFITABILITY: AN EMPIRICAL ANALYSIS OF ETHIOPIAN INSURANCE INDUSTRY

Abstract

The Ethiopian insurance industry is witnessing a remarkable growth in gross written premium through the application of latest technologies and employing capable individuals. The addition and/or development of new products and market expansion over the passage of time coupled with efforts induced by the national bank of Ethiopia and firms self motivated acts towards same played a role in this regard. As such, active financial analysis has become one of the important tools that companies use to model the underwriting and investment operations of insurance companies. This could be made possible through empirical analysis of relationship between profit and factors that affect same. In this study the effort was made to determine the effect of market share on profitability of insurance firms in Ethiopia by utilizing a quantitative research approach. Panel data covering ten-year period from 2005 – 2014 were analyzed for nine insurance companies. The panel data was collected from periodic reports of NBE on the financial statements of individual companies and reorganized for the current empirical analysis purposes across nine firms considered in the sample and over ten years of operation period. The common determinants of financial performance of firms like tangibility, liquidity and firm size were also included in the model to balance effect estimation. The findings of the study revealed the presence of positive association between market share and profit for the Ethiopian insurance industry. Accordingly, the study recommends that the insurance managers in Ethiopia should give a proper consideration to market share with proper operational cost management to grow profitably. The analysis also supports the findings of previous literature that agreed on the presence of positive relationship in between the two. It has also practical implications for business leaders and operation managers.