THE EFFECT OF INVESTMENT ON FINANCIAL PERFORMANCE OF INSURANCE COMPANIES IN ETHIOPIA

Abstract

The effect of investment has been considered to be an important issue on the financial performance of insurance companies. This study empirically examines the effect of investment on financial performance of insurance companies in Ethiopia and interprets the result by relating with the regulations. The study used balanced panel model in examining the regression model and collect data from eight insurance companies covering the period of eighteen (18) consecutive years, 2000-2017. To this end, the study employed a quantitative research approach by documentary analysis based on their audited financial statement. The study used panel data techniques specifically fixed effect model on the regression analysis and used E-view8 software. The study used two dependent variables return on asset (ROA) and return on equity (ROE), six independent variables that are time deposit investment, equity investment, Treasury bill investment, fixed asset investment, capital adequacy ratio and insurance size. The regression result show that time deposit investment, fixed asset investment, capital adequacy ratio and insurance size show positive and significant effect at 5% significance level on financial performance of insurance companies in Ethiopia, whereas, equity investment and Treasury bill investment are insignificant effect at 5% significance level on financial performance of insurance companies in Ethiopia. The research concluded that investment has significant effect on financial performance of Ethiopian insurance companies. Hence, the study recommend in support of each variables for Ethiopian insurance companies to give due attention on investment sector to enhance their financial performance significantly.