FINANCIAL POLICY AND PROFITABILITY OF LISTED INSURANCE FIRMS IN NIGERIA

Abstract

A well-developed financial policy can assist firms obtain funds to finance its investment and operational needs at the same time. The study examined the effect of financial policy on profitability of listed insurance companies in Nigeria. Secondary data were obtained from the ten insurance firms that were selected as samples and data from their financial statements for a period of 10 years (2009-2018). The study has employed the use of OLS and GLS regression model to analyze the effect of financial policy on the profitability of the selected firms. The dependent variable used in the study is Return on Asset while the independent variables were Short Term Debt Ratio, Long Term Debt Ratio, Capital Expenditure, and Dividend Payout Ratio. The study concluded that long term debt ratio, capital expenditure and dividend payout ratio are positively and strongly influencing return on asset of the listed insurance firms in Nigeria, while short term debt ratio is negatively influencing return on asset of the listed insurance firms in Nigeria. The study recommended that managers of insurance companies in Nigeria should strive to maintain financial performance on a high level by keeping short term debt low, while ensuring that long term debt, capital expenditures and dividend payout ratios are kept high. Furthermore, managers should rather reinvesting excess funds into other short-term money market instruments that will increase shareholders wealth in the long run instead of paying them out as dividend.