AUDIT COMMITTEE DIVERSITY, FIRM SIZE AND FINANCIAL PERFORMANCE OF INSURANCE COMPANIES IN KENYA
Abstract
Statement of the Problem: Kenyan insurers continue to experience performance instability, weak profitability, and firm failures despite ongoing governance reforms. This raises concern about whether governance mechanisms, particularly audit committee diversity, translate into improved financial outcomes and whether organisational scale conditions these effects.
Purpose of the Study: This study examined the effect of audit committee diversity on the financial performance of insurance companies in Kenya and assessed whether firm size moderates this relationship within a regulated insurance environment.
Research Methodology: The study adopted a positivist philosophy and a causal research design. A census approach was applied, covering 49 insurance firms operating in Kenya over the period 2015 to 2024, resulting in balanced panel data from 44 firms. Secondary data were obtained from audited financial statements, annual reports, and regulatory publications. Audit committee diversity was measured using gender and nationality composition, financial performance was proxied by return on equity (ROE), and firm size was measured using total assets. Data were analysed using descriptive statistics and panel regression techniques, including random and fixed effects models with cluster-robust standard errors. Moderation analysis was conducted using interaction terms between audit committee diversity and firm size.
Findings: The results show that audit committee diversity has a negative but statistically non-significant association with ROE. Firm size exhibits a positive but non-significant relationship with financial performance. The interaction between audit committee diversity and firm size is also not statistically significant, indicating that firm size does not moderate the relationship between diversity and financial performance. These findings suggest that the effect of audit committee diversity on firm performance remains consistent across firms of different sizes. The study draws on signalling theory, economies of scale theory and shareholder primacy theory to explain governance-performance relationships in a regulated financial sector.
Conclusion: The findings contribute to governance literature by demonstrating that audit committee diversity does not yield differential financial outcomes across firms of varying sizes, highlighting the context-dependent nature of governance effects.
Recommendation: For practice, boards should focus on enhancing the functional contribution of diverse members rather than relying on diversity alone to improve performance. For policy, regulators such as the Insurance Regulatory Authority should prioritise strengthening the operational effectiveness of audit committees rather than assuming that firm size will enhance governance outcomes.
Keywords: Audit Committee Attributes, Firm Size, Financial Performance, Insurance Governance, Kenya
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