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Corporate Governance and Firm Efficiency in The Long-Term Insurance Market in South Africa
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...
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| Format: | Thesis |
| Language: | English |
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Graduate School of Business (GSB)
2018
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| _version_ | 1867613305348030464 |
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| access_status_str | Open Access |
| author | Boakye, Mary-Ann |
| author2 | Alhassan, Abdul Latif |
| author_browse | Alhassan, Abdul Latif Boakye, Mary-Ann |
| author_facet | Alhassan, Abdul Latif Boakye, Mary-Ann |
| author_sort | Boakye, Mary-Ann |
| collection | Thesis |
| description | 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. |
| format | Thesis |
| id | oai:open.uct.ac.za:11427/28405 |
| institution | University of Cape Town (South Africa) |
| language | eng |
| last_indexed | 2026-06-10T12:34:00.978Z |
| license_str | Not specified — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UCTD — University of Cape Town Open Access Repository |
| publishDate | 2018 |
| publishDateRange | 2018 |
| publishDateSort | 2018 |
| publisher | Graduate School of Business (GSB) |
| publisherStr | Graduate School of Business (GSB) |
| record_format | dspace |
| source_str | UCTD — University of Cape Town Open Access Repository |
| spelling | oai:open.uct.ac.za:11427/28405 Corporate Governance and Firm Efficiency in The Long-Term Insurance Market in South Africa Boakye, Mary-Ann Alhassan, Abdul Latif CEO tenure South Africa financial crises insurance industry Africa 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. 2018-09-06T12:38:20Z 2018-09-06T12:38:20Z 2018 2018-08-30T07:32:47Z Thesis http://hdl.handle.net/11427/28405 eng application/pdf Graduate School of Business (GSB) Faculty of Commerce University of Cape Town |
| spellingShingle | CEO tenure South Africa financial crises insurance industry Africa Boakye, Mary-Ann Corporate Governance and Firm Efficiency in The Long-Term Insurance Market in South Africa |
| title | Corporate Governance and Firm Efficiency in The Long-Term Insurance Market in South Africa |
| title_full | Corporate Governance and Firm Efficiency in The Long-Term Insurance Market in South Africa |
| title_fullStr | Corporate Governance and Firm Efficiency in The Long-Term Insurance Market in South Africa |
| title_full_unstemmed | Corporate Governance and Firm Efficiency in The Long-Term Insurance Market in South Africa |
| title_short | Corporate Governance and Firm Efficiency in The Long-Term Insurance Market in South Africa |
| title_sort | corporate governance and firm efficiency in the long term insurance market in south africa |
| topic | CEO tenure South Africa financial crises insurance industry Africa |
| url | http://hdl.handle.net/11427/28405 |
| work_keys_str_mv | AT boakyemaryann corporategovernanceandfirmefficiencyinthelongterminsurancemarketinsouthafrica |