Diversification Strategies, Corporate Cannibalisation, Environmental Munificence and Financial Performance of Insurance Companies in Kenya

Abstract

Insurance industry in Kenya is an important contributor to the economic growth of the country. Provision of financial security, extension of financial services, guaranteeing of future continuity of businesses are just part of the functions played by the insurance industry in the country. Insurance companies have diversified their operations aimed at improving industry financial performance. Despite the diversification, the insurance industry has shown negative financial performance indicated by among others a consistent decline of insurance penetration from 3.44% in 2013 to 2.43% in 2018 to 2.17 in 2020. This study hypothesized that corporate cannibalization mediated the diversification effect hence influencing financial performance. Also, the study hypothesized that environmental munificence moderated the diversification effect thus influencing the financial performance of insurance companies. This study therefore sought to establish the effects of diversification strategies, corporate cannibalization and environmental munificence on financial performance of insurance companies in Kenya. The theoretical foundation of the study was, resource based theory, contingency theory, transaction cost theory and the. expectancy theory. The study was anchored on a positivism philosophical stance that lays more emphasis on quantifiable observations. The study employed a causal comparative research design. A census was conducted on the entire population of all the 55 registered and licensed insurance companies in Kenya. Secondary data was used in this study and was collected through a secondary data collection schedule. Data was collected for 5 years from the year 2017 to the year 2021. A multiple regression model was used to determine the extent and strength of relation between diversification strategies, corporate cannibalization, environmental munificence and financial performance of insurance companies. The study found that diversification strategies positively affected financial performance of insurance companies. Also the study established that both corporate cannibalization and environmental munificence negatively affected financial performance of insurance companies. The study concluded that diversification strategies had a significant effect on financial performance of insurance companies in Kenya. This study also concluded that corporate cannibalization had significant mediating effect on the relationship between diversification strategies and financial performance of insurance companies. It was also concluded that environmental munificence had a significant moderation effect on the relationship between diversification strategies and financial performance of insurance companies. Lastly, the study concluded that there existed a significant joint effect between diversification strategies, corporate cannibalization, and environmental munificence on financial performance of insurance companies in Kenya. The study recommended that insurance companies should embrace diversification strategies to improve financial performance. Further, the diversification should only be adopted when the environment is munificent. Also, the study recommended unrelated diversification in order to avoid cannibalization. It is expected that the findings of this study will help the government and insurance companies in policy formulation. Scholars and researchers in the field of strategic management will also benefit from the new knowledge gathered on diversification strategies, corporate cannibalization, and environmental munificence.