INFLUENCES OF FINANCIAL SLACK RESOURCES AND RISK-TAKING BEHAVIOUR ON INVESTMENT DECISIONS OF INSURANCE COMPANIES IN NIGERIA (1996 – 2021)
Keywords:
Financial Slack Resources, Risk Taking Behaviour, Current Asset, Working Capital, Investment DecisionsAbstract
This study examined the influences of financial slack resources and risk taking behaviour on investment decisions of insurance companies in Nigeria. Insurance companies in Nigeria may be crippled by weak risk taking behavior as well as large catastrophic loss if their financial slack resources, current assets, working capital, size, previous performance and other internal reserves are not large enough to cover certain risk exposures, which will in turn discourage them from taking more risk especially in making investment decisions. The researcher employed the use of ex post facto design in which secondary data were obtained from CBN statistical Bulletin from 1996 to 2021. The data were analyzed using the inferential methods of Co-integration bound Test, short run and long run Autoregressive Distributed Lags (ARDL) estimation tests. The finding was that financial slack resources influenced investment decisions of insurance companies in Nigeria positively and significantly in the short-run while risk taking behaviour maintained negative and insignificant influence. On the contrary, there are no significant long-run effects of current asset ratio, working capital ratio and risk taking behaviour on investment decisions of insurance companies in Nigeria. Recommendations were that there is need for insurance companies to maintain large amount of financial slack keeping higher level of liquidity, more working capital and current assets reserves and channel these financial slack resources into short term investments. Efforts should be made to improve the company risk taking behaviour on investment decisions for higher returns on investments.
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