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Influence of Liquidity on Financial Performance of Insurance Companies in Kenya
Abstract
Liquidity is the capacity of a company to satisfy its current financial obligations after they fall due. A firm may incur extra costs if it fails to honor its short term financial obligations. The aim of the study was to determine the influence of liquidity on the financial performance of insurance companies in Kenya. The research applied a correlational research design. A correlational study design is administrated to debate the connection between variables. The target population for this study was the fifty-three insurance companies in Kenya that were operational in 2018. The investigation found that liquidity had an enormous positive effect on financial performance (Return on assets and return on equity). The study concludes that the greatest threat to liquidity may occur in an insurance firm during a catastrophe when a large number of claims are received directly or there could even be prospects of a significantly large claim which insurance companies should have optimal liquidity for such situations. The review recommends that Insurance firms should monitor liquidity in their firms and adopt corrective actions in instances of high liquidity risk.
