CHAPTER ONE
INTRODUCTION
1.1 BACKGROUND TO THE STUDY
Firms can be distinguished from one another on the basis of different financial and non-financial characteristics including size, value, profitability, structure, leverage, liquidity etc. These characteristics are unique to specific companies and raise a perception in the mind of the users of that information regarding the performance and future of the company. According to Safdar et al., 2013, in the current era where all critical decisions of firm management quickly reach the markets as well as information users, an important issue regarding financial research is the impact of these characteristics on financial performance. Firm size is one of the most influential characteristics in organizational studies. Chen and Hambrick (2013), and Mintzberg (1979) provide a summary and overview of the importance of firm size. Firm size has also been shown to be related to industry- sunk costs, concentration, vertical integration and overall industry profitability (Dean et al., 2014). Larger life companies are more likely to have more layers of management, greater number of departments, increased specialization of skills and functions, greater centralization and greater bureaucracy than smaller life insurance companies (Da, 2013). Firm age (measured as the number of years a company is operating in the market since it was founded) is an important determinant of financial performance and stock returns (Kaguri, 2013). Past research shows that the probability of firm growth, firm failure, and the variability of firm growth decreases as firm’s age (Evans, 1987; Yasuda, 2005).According to the life cycle effect, younger companies are more dynamic and more volatile in their growth experience than older companies (Kogan, 2012). Maturity brings stability in growth as firms learn more precisely their market positioning, cost structures and efficiency levels and these influences stock prices. Micro and macroeconomic factors affect the performance of a firm. Microeconomic factors exist within the company and under the control of management; they include product, organizational culture, leadership, manufacturing (quality), demand and factors of production (Broadstock et al., 2011; Adidu and Olanye, 2006). Macroeconomic factors exist outside the company and not under the control of management; they include social, environmental, political conditions, suppliers, competitors, government regulations and policies (Adidu and Olanye, 2006).
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