The Impact of Capital Structure on the Financial Performance of Insurance Companies: An Econometric Analysis of the Insurance Industry in Kosovo

The primary purpose of this chapter is to analyze the impact of capital structure on the financial performance of insurance companies in Kosovo. During the literature review process, the empirical findings of many studies by other authors that have addressed the issue of the impact of capital structure on the financial performance of insurance companies in different parts of the world have been analyzed. Quantitative methods have been applied in this scientific research based on the secondary data of the annual statistical reports of the time series of the Central Bank of Kosovo as well as the audited annual financial statements of insurance companies in Kosovo. In order to analyze the impact of capital structure on the financial performance of insurance companies in Kosovo, it is necessary to consider many other factors that explain the correlation between these variables. The period included in this study is 17 years (2004–2021), the number of insurance companies included in the analysis is 12, and the number of observations reaches 110. The insurance industry in Kosovo plays an important role for all businesses in that without insurance companies, businesses could end up facing bankruptcy due to their instability and dynamic business environment. The capital structure is an essential aspect for insurance companies in Kosovo because these firms need funds to finance their operation, settle their claims or pay damages at the time of loss. The study concluded that the capital structure has a significant impact on the financial performance of insurance companies in Kosovo. Based on the econometric results of this study, we can conclude that all independent variables (funds contributed by the owners, retained earnings, general and specific reserves, asset and liability management) have a significant positive impact on the financial performance of insurance companies in Kosovo.