Credit rating, financial performance, and value of listed insurance companies in Nigeria
DOI:
https://doi.org/10.37075/FABA.2026.1.03Keywords:
credit ratings, creditworthiness, financial performance, value, investors, rating agencyAbstract
Purpose: The study determines the association between credit ratings and key performance indicators, including Return on Assets (ROA), Return on Equity (ROE), and firm value measured by Tobin’s Q.
Design/Methodology/Approach: The study used secondary data from six listed insurance firms over five-year period (2020-2024), sourced from annual reports, stock exchange filings, and rating agency publications. A panel-least squares regression with fixed effects was employed as the primary method of analysis alongside descriptive statistics, correlation analysis, and diagnostic tests, using EViews software.
Findings: Contrary to theoretical predictions from Default Risk Theory and Signaling Theory, the results reveal that, at 5% level of significance, credit ratings has a negative and statistically insignificant association with ROA (β = -0.0023, p = 0.8482), a positive and insignificant association with ROE (β = 0.0243, p = 0.3245), and a negative insignificant association with Tobin's Q (β = -0.0649, p = 0.0619). Firm size consistently demonstrated a positive and significant relationship with all three performance measures.
Practical Implications: Although credit ratings are essential tools for financial stability assessment in developed markets, their limited association with performance indicators in this study suggests that macroeconomic instability, underdeveloped capital markets, and low investor awareness of credit ratings in Nigeria may diminish their effectiveness. This underscores the need for regulatory reforms, investor education, and market development to enhance the signaling power of credit ratings in Nigeria's insurance sector.
Originality/Value: The research contributes by filling a knowledge gap in the literature on credit ratings in developing markets, particularly in Nigeria’s insurance sector, where prior studies are scarce and often focus on developed economies
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