The impact of Company-specific and Macro-economic factors on Company Performance: Evidence from Insurance Sector in Sri Lanka

Abstract

This study examines the impact of company-specific and macro-economic factors on insurance companies' financial and market performance in Sri Lanka. The analysis was conducted using a panel regression. The sample consisted of nine listed insurance companies from 2010 to 2019, inclusive of both years. Capital structure, capital adequacy, liquidity position, and company size were considered as company-specific factors, whereas inflation and GDP growth were considered as market-specific factors. Net profit margin, return on assets, return on equity, and earnings per share were considered to measure the financial performance. In contrast, market value-added (MVA) was used to measure the market performance. Capital adequacy and capital structure have a significant negative association with financial performance, whereas the size is positively related to financial and market performance. The GDP growth rate is negatively associated with financial performance. Moreover, the liquidity position of the company is positively related to the MVA. The study provides evidence that the capital structure, capital adequacy, GDP growth rate, size of the company and liquidity position are essential factors that affect the insurance sector's financial and market  performance in Sri Lanka. The study recommends that Sri Lankan insurance companies pay due attention to these factors to address financial and market performance matters. There is a dearth of studies in Sri Lanka on this phenomenon. We contribute as the direct study that analyzes the financial and market performance of the insurance sector in Sri Lanka in a single study.

Keywords: Company-specific factors, Financial performance, Market performance, Insurance sector, Macroeconomic factors, Sri Lanka.