Title of the paper: Corporate Liquidity and Performance of Listed Insurance Companies in

Nigeria
Authors: Sani Abdul Rahman Bala, Muhammad Yunusa Salisu, Idris Sani
Summary: The study was conducted to investigate the effect of firms’ liquidity on the financial
performance of the listed companies in Nigeria.

Liquidity management is a crucial phenomenon for the survival of the insurance companies. The
insurer can face variations in cyclical claim, unexpected large amounts of claim and also sudden
statutory obligations which could lead to a great financial loss, if enough portfolio of liquid assets
is not maintained. In Nigeria, many insurance companies are suffering from low earnings as they
have poor quality assets, inadequate capital base and also poor liquidity management.

As the advantage of maintaining the adequate amount of liquidity is growing day by day, many
literature reviews over the world have been prepared to evaluate the influence of insurance firms’
liquidity on the firm performance. Only a few studies have been carried out in Nigeria, but most
of them was about banking industry. No such empirical literature is documented showing the
relationship between liquidity and the firm performance based on the insurance sector in Nigeria.
Therefore, to mitigate such gap, this study was constructed.

The research paper used a descriptive research design, as it described how liquidity management
impact financial performance of insurance companies in Nigeria. The study was executed by
having a sample size of seven insurance companies that are enlisted on the Nigerian Stock
Exchange commission by using Simple random sampling technique, from the periods of 2014 to
2019. Lastly, GLS random effects regression was applied to investigate the relationship between
the data.

In order to find out the impact of liquidity position on the firm’s profitability, the study adopted
some ratios as a proxy of these two. For example, Return on Assets is applied as a proxy of
profitability as it is widely used in estimating financial performance and it is used as a dependent
variable in the regression model. For independent variable, liquidity management was proxied by
Current ratio, Premium to Asset Ratio, Capital Adequacy Ratio and Firm Size.

According to the result of the GLS random effects, current ratio and premium to asset ratio had a
significant but inverse effect on the performance of the sampled insurance companies in Nigeria,
implying that if these two ratios rise, the financial performance declines. Furthermore, the firm
size had a positive but insignificant impact on the ROA, as the p-value was greater than the
significance level. Lastly, the result also revealed that CAR had a significant and positive influence
on the firm performance. So, CAR is the key factor that impacted the financial performance of
listed insurance companies in Nigeria. It indicates that an increase in share capital leads to an
increase in the profitability of the insurance firms in Nigeria.

Lastly, some recommendations have been given as follows:

1. Insurance firms should issue shares to the general public for investment.
2. The firms should invest the outcome from shares in viable assets.
3. To improve from the current poor profitability performance, the insurance firms in Nigeria
should redesign their liquidity management policies.
SL Year of Purpose of The Methods Variables
Authors Key Findings
No. publication Study Using Dependent Independent
1. Sani Abdul 2022 To determine the GLS The findings of the study Return on Current Ratio
Rahman influence of firms’ random- revealed that the capital Assets Premium to
Bala, liquidity on the effects adequacy ratio is the major Asset ratio,
Muhammad financial regression factor that influences the Capital
Yunnusa performance of method. financial performance of Adequacy
Salisu, Idris quoted insurance quoted insurance firms in Ratio, Firm
Sani companies in Nigeria. Nigeria. Size
Reference (APA) Bala, S. A., Salisu, M. Y., & Sani, I. D. R. I. S. CORPORATE LIQUIDITY AND PERFORMANCE OF LISTED INSURANCE
COMPANIES IN NIGERIA.