Exploring the Probability of Bankruptcy for Conventional Insurance Companies Listed at Kuwait Stock Exchange and its Effect on Their Share Prices

Yaser A. AlKulaib* and Musaed S. AlAli
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Yaser A. AlKulaib*: Assistant Professor, Department of Finance and Financial Institutions, College of Business Administration, Kuwait University, Kuwait
Musaed S. AlAli: Assistant Professor, Department of Insurance and Banking, College of Business Studies, PAAET, Kuwait

The Journal of Social Sciences Research, 2019, vol. 5, issue 9, 1341-1346

Abstract: Insurance is a crucial component of any financial sector, the financial soundness of the insurance sector will result in a healthier financial system in any country. The insurance sector is responsible for transferring risk from one entity to another, for premium, to hedge against any risk of unexpected loss. For that, the insurance sector plays the role of safety net for the whole of the financial system in any country. This study aims to detect the existence of signs of financial failure for conventional insurance companies listed at Kuwait stock exchange (KSE). The study uses the Altman Model to calculate the financial failure indicators. The research also measures the relationship between the financial failure score and the share price of these companies. The analysis is based on the belief that financial reports provide information to investors which can be taken as indicators of the financial failure or success of companies. This information will affect investment decisions which, in turn, will be reflected on the share price. This study is based on the financial data of conventional insurance companies listed at Kuwait stock exchange for the period spanning from 2010 to 2017. A panel data collected from the financial statements of the four conventional insurance companies listed at the stock market were used to calculate the financial failure score for these companies. Ordinary least squared (OLS) regression method, is then used to evaluate the relation between Altman’s z-score and the share price of these companies. Results obtained from this study showed that conventional insurance companies operating in Kuwait had a healthy financial positions and therefore safe from bankruptcy risk. The study also revealed that there was no statistically significant relation between Altman’s score and the share price indicating that the financial failure score does not have an effect on share price of conventional insurance companies listed at Kuwait stock exchange.

Keywords: Altman’s bankruptcy model; Financial failure; Financial soundness; Financial distress; Insurance companies; Financial ratios; Kuwait stock exchange (KSE) (search for similar items in EconPapers)
Date: 2019
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