Corporate social responsibility and financial performance of insurance companies in Kenya: The moderating role of social capital

Abstract

In Kenya, insurance companies have not been very aggressive in corporate social responsibility activities over the years and most of the insurance companies have not been intensely involved in corporate social responsibility as compared to other insurance companies in other countries, which has negatively affected their financial performance. Financial performance of majority of insurance firms has been on a decline according to the Insurance Regulatory Authority Report (2015). The study examined the relationship between corporate social responsibility and financial performance of insurance companies in Kenya with the moderating role of social capital. The specific objectives were to assess the relationship between economic responsibilities, discretionary responsibilities, legal responsibilities, ethical responsibilities and the financial performance of insurance companies in Kenya. The moderating effect of social capital on the relationship between corporate social responsibility and financial performance of insurance companies in Kenya was also analysed. The study was anchored in the stakeholder theory, legitimacy theory, social capital theory, social contracts theory and agency theory. The explanatory research design was adopted for the study. The target population for the study was 49 insurance companies in Kenya governed by the Insurance Regulatory Authority. The correlation results indicated that there was a positive and significant association between economic responsibilities and financial performance. Additionally, economic responsibilities and financial performance were positively and significantly related. Likewise, social capital moderated the relationship between economic responsibilities and financial performance. There was a positive and significant association between discretionary responsibilities and financial performance. The regression results indicated that discretionary responsibilities and financial performance were positively and significantly related. Social capital moderated the relationship between discretionary responsibilities and financial performance. The correlation results showed that there was a positive and significant association between legal responsibilities and financial performance. Moreover, the regression results indicated that legal responsibilities and financial performance were positively and significantly related. The social capital moderated the relationship between legal responsibilities and financial performance. The correlation results showed a positive and significant relationship between ethical responsibilities and financial performance. Regression results showed that ethical responsibilities and financial performance were positively but insignificantly related. Social capital did not moderate the relationship between ethical responsibilities and financial performance. The study recommended that insurance companies should engage in corporate social responsibility through economic responsibilities, discretionary responsibilities, legal responsibilities and ethical responsibilities since they had a positive impact on financial performance.