Determinants of Financial Distress in Case of Insurance Companies in Ethiopia

Abstract

The financial health status of business firms and the effect of firm characteristics on it are taught to be one of the very important issues in the current business environment. This study empirically examines the effect of internal factors (i.e., Profitability, Liquidity, Efficiency, Leverage and firm size) on the financial distress condition of insurance companies in Ethiopia. The study is based on a ten year panel data ranging from 2009 to 2018 GC, obtained from a sample of nine insurance companies. The study employed the Altman’s Z”-score model to measure the financial health condition of insurance companies under study, and the pooled OLS regression analysis to estimate the effect of determinant variables on financial distress. The study concluded that the profitability and liquidity levels of insurance companies have a statistically significant positive effect on their financial distress condition. Whereas, leverage has a statistically significant negative effect on the financial distress condition of insurance companies. Efficiency and firm size have no statistically significant effect on the financial health condition of insurance companies.

Keywords: Altman’s Z”-Score, Financial distress, Pooled OLS.

DOI: 10.7176/RJFA/10-15-05

Publication date: August 31^st 2019