Exploring the nonlinear effect of size on profitability: evidence from an insurance brokerage industry in an emerging market
African Journal of Economic and Management Studies
ISSN: 2040-0705
Article publication date: 8 June 2021
Issue publication date: 18 August 2021
Abstract
Purpose
This study examines the possible nonlinear effect of size on stakeholder and shareholder profitability in the Ghanaian insurance brokerage industry.
Design/methodology/approach
This study employs a panel dataset of 64 Ghanaian insurance brokerage firms spanning 2011–2015. Static [ordinary least squares (OLS), fixed effect and random effect and dynamic (two-step generalized method of moments (GMM))] estimation techniques are employed to analyze the data.
Findings
The study finds the existence of both economies and diseconomies of scale and scope theories in the Ghanaian insurance brokerage industry confirming the existence of nonlinear nexus between size and performance. This finding is consistent for both stakeholder and shareholder profit performance. Thus, the results show that size improves profitability of insurance brokerage firms, but beyond a certain threshold, the relationship turns negative as size negatively affects profitability.
Practical implications
The research findings have implications for both policy and research; the study recommends that Ghanaian brokerage managers should understand that not all growth is good and exercise a duty of care when applying growth strategies by monitoring size effect on performance so as not to go beyond the inflection point. Further research can be done to examine this effect in other contexts, timeframes and jurisdictions.
Originality/value
This research is unique in that it employs a panel dataset consisting of 96% of insurance brokerage firms in Ghana whilst employing both static and nonstatic regression models to examine the effect of size. The research analysis adopted is robust, and the findings are significant. Also, the lack of empirical studies on the operations and dealings of auxiliary institutions such as the insurance brokerage firms adds value to this research.
Keywords
Citation
Kotey, R.A., Akomatey, R. and Kusi, B.A. (2021), "Exploring the nonlinear effect of size on profitability: evidence from an insurance brokerage industry in an emerging market", African Journal of Economic and Management Studies, Vol. 12 No. 3, pp. 381-399. https://doi.org/10.1108/AJEMS-05-2020-0228
Publisher
:Emerald Publishing Limited
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