DETERMINANTS OF INSURANCE COMPANIES’ PROFITABILITY IN ETHIOPIA

Abstract

Insurance business now a day plays a significant role in the growth of the financial services which ultimately leads to the overall success of the economy. This paper examined the effects of firm- specific factors (firm growth, size of company, leverage ratio, liquidity ratio, efficiency, tangibility of assets, and investment); industry-specific factors, market share and concentration; and macroeconomic factors (tax rate, competition and interest rate) on profitability measured by ROA. The sample in this study includes nine insurance companies for 10 years (2008-2017). The researcher used correlational explanatory research design. Secondary data obtained from the financial statements (Balance sheet and income statement) of insurance companies. As the pooled OLS regression outcome; size, leverage, tangibility of asset, liquidity, market share firm growth and efficiency are identified as significant determinants of profitability hence firm size, firm growth and, efficiency is positively related. In contrast, leverage, liquidity, tangibility, and market share are negatively but significantly related with profitability. Investment, concentration, tax rate, interest rate and competition are not significant determinants of profitability. Therefore the insurance managers and policy makers should give high attention to firmspecific determinants of profitability