Corporate Governance and Firm Efficiency in The Long-Term Insurance Market in South Africa
| dc.contributor.advisor | Alhassan, Abdul Latif | |
| dc.contributor.author | Boakye, Mary-Ann | |
| dc.date.accessioned | 2018-09-06T12:38:20Z | |
| dc.date.available | 2018-09-06T12:38:20Z | |
| dc.date.issued | 2018 | |
| dc.date.updated | 2018-08-30T07:32:47Z | |
| dc.description.abstract | The financial crises experienced worldwide have contributed to the rising importance of corporate governance. South Africa is unique in that it has strong corporate governance structures and as a result, it would prove useful to assess the effects of these corporate governance structures on critical sectors such as the long-term insurance industry, which is the largest insurance industry in Africa. The objective of this study is to examine the effect of corporate governance mechanisms and firm efficiency in the South African long-term insurance industry using data on 73 long-term insurers from 2007 to 2014 in a two-stage analysis. In the first stage, firm efficiency is estimated using the data envelopment analysis (DEA) bootstrapping technique of Simar and Wilson (2007), which corrects for biases associated with non-parametric techniques. In the second stage analysis, the truncated bootstrapping regression technique is employed to examine the effect of corporate governance on the estimated efficiency scores. The corporate governance variables used were board size, board independence, audit committee size, CEO tenure and audit independence, while controlling for firm size, reinsurance usage and leverage. The findings indicate that long-term insurers in South Africa operated at approximately 21% of their optimal capacity which suggests high levels of inefficiency in the provision of life insurance services. The results of the second-stage analysis identify board size, non-executive directorship, CEO tenure and audit independence as the significant corporate governance indicators that impact on efficiency over the study period. In addition, firm size, reinsurance usage and leverage were also observed to be significantly related to the estimated efficiency scores. The findings suggest that non-executive directors are not as effective as expected, which may be due to a myriad of reasons, such as under-representation on sub-committees, a lack of relevant skills, experience or financial expertise. Insurers should use more stringent criteria to screen potential non-executive directors and provide training and regular updates to adequately capacitate the non-executive directors with the necessary skills and knowledge. The positive relationship between CEO tenure and efficiency suggests that frequent CEO rotation is not advisable. Most of the corporate governance indicators have a negative effect on efficiency, which is not the intended effect. This is an indication that corporate governance measures should not be viii enforced on insurers as a 'one size fits all’ measure, rather, a focus should be placed on corporate governance measures that have the intended impact, such as audit committee independence. | |
| dc.identifier.apacitation | Boakye, M. (2018). <i>Corporate Governance and Firm Efficiency in The Long-Term Insurance Market in South Africa</i>. (). University of Cape Town ,Faculty of Commerce ,Graduate School of Business (GSB). Retrieved from http://hdl.handle.net/11427/28405 | en_ZA |
| dc.identifier.chicagocitation | Boakye, Mary-Ann. <i>"Corporate Governance and Firm Efficiency in The Long-Term Insurance Market in South Africa."</i> ., University of Cape Town ,Faculty of Commerce ,Graduate School of Business (GSB), 2018. http://hdl.handle.net/11427/28405 | en_ZA |
| dc.identifier.citation | Boakye, M. 2018. Corporate Governance and Firm Efficiency in The Long-Term Insurance Market in South Africa. University of Cape Town. | en_ZA |
| dc.identifier.ris | TY - Thesis / Dissertation AU - Boakye, Mary-Ann AB - The financial crises experienced worldwide have contributed to the rising importance of corporate governance. South Africa is unique in that it has strong corporate governance structures and as a result, it would prove useful to assess the effects of these corporate governance structures on critical sectors such as the long-term insurance industry, which is the largest insurance industry in Africa. The objective of this study is to examine the effect of corporate governance mechanisms and firm efficiency in the South African long-term insurance industry using data on 73 long-term insurers from 2007 to 2014 in a two-stage analysis. In the first stage, firm efficiency is estimated using the data envelopment analysis (DEA) bootstrapping technique of Simar and Wilson (2007), which corrects for biases associated with non-parametric techniques. In the second stage analysis, the truncated bootstrapping regression technique is employed to examine the effect of corporate governance on the estimated efficiency scores. The corporate governance variables used were board size, board independence, audit committee size, CEO tenure and audit independence, while controlling for firm size, reinsurance usage and leverage. The findings indicate that long-term insurers in South Africa operated at approximately 21% of their optimal capacity which suggests high levels of inefficiency in the provision of life insurance services. The results of the second-stage analysis identify board size, non-executive directorship, CEO tenure and audit independence as the significant corporate governance indicators that impact on efficiency over the study period. In addition, firm size, reinsurance usage and leverage were also observed to be significantly related to the estimated efficiency scores. The findings suggest that non-executive directors are not as effective as expected, which may be due to a myriad of reasons, such as under-representation on sub-committees, a lack of relevant skills, experience or financial expertise. Insurers should use more stringent criteria to screen potential non-executive directors and provide training and regular updates to adequately capacitate the non-executive directors with the necessary skills and knowledge. The positive relationship between CEO tenure and efficiency suggests that frequent CEO rotation is not advisable. Most of the corporate governance indicators have a negative effect on efficiency, which is not the intended effect. This is an indication that corporate governance measures should not be viii enforced on insurers as a 'one size fits all’ measure, rather, a focus should be placed on corporate governance measures that have the intended impact, such as audit committee independence. DA - 2018 DB - OpenUCT DP - University of Cape Town LK - https://open.uct.ac.za PB - University of Cape Town PY - 2018 T1 - Corporate Governance and Firm Efficiency in The Long-Term Insurance Market in South Africa TI - Corporate Governance and Firm Efficiency in The Long-Term Insurance Market in South Africa UR - http://hdl.handle.net/11427/28405 ER - | en_ZA |
| dc.identifier.uri | http://hdl.handle.net/11427/28405 | |
| dc.identifier.vancouvercitation | Boakye M. Corporate Governance and Firm Efficiency in The Long-Term Insurance Market in South Africa. []. University of Cape Town ,Faculty of Commerce ,Graduate School of Business (GSB), 2018 [cited yyyy month dd]. Available from: http://hdl.handle.net/11427/28405 | en_ZA |
| dc.language.iso | eng | |
| dc.publisher.department | Graduate School of Business (GSB) | |
| dc.publisher.faculty | Faculty of Commerce | |
| dc.publisher.institution | University of Cape Town | |
| dc.subject.other | CEO tenure | |
| dc.subject.other | South Africa | |
| dc.subject.other | financial crises | |
| dc.subject.other | insurance industry | |
| dc.subject.other | Africa | |
| dc.title | Corporate Governance and Firm Efficiency in The Long-Term Insurance Market in South Africa | |
| dc.type | Thesis | |
| uct.type.filetype | Text | |
| uct.type.filetype | Image |