A study on the determinants of financial health of pre-need companies in the Philippines

• Main Authors: Fernandez, Beulah Rose M., Sevilla, Arlene Celeste J., Tropicales, Josephine M.
• Format: text
• Language: English
• Published: Animo Repository 2005
• Subjects: Insurance companies > Philippines; Insurance companies > Philippines > Management; Insurance companies > Investment > Philippines; Finance and Financial Management
• Online Access: https://animorepository.dlsu.edu.ph/etd_bachelors/18347
• Institution: De La Salle University

This paper is about The determinants of the financial strength of pre-need companies in the Philippines. The research problem is about knowing the firm-specific and market or economic factors that will predict the financial health of pre-need companies. In line with this, we considered the following independent variables: (1) firm size (2) investment performance (3) leverage (4) liquidity (5) operating margin (6) premium growth (7) growth rate of surplus (8) inflation (9) interest rates (10) changes in expenses and (11) return on invested capital, and determined which of these variables are significant in classifying the pre-need companies as stable (solvent) or unstable (insolvent). The primary objective of this study is to determine the variables that could predict the financial strength of pre-need companies in the Philippines. In accomplishing such, we have the following secondary objectives: (1) to determine which among the independent variables will be an appropriate measure of a company's solvency (2) to analyze and determine which among the pre-need companies are financially stable (solvent) or unstable (insolvent). The generic null hypothesis is that the independent variables have no significant effect on the solvency of pre-need companies using the discriminant analysis. While the alternative hypothesis is that the independent variables have significant effect on solvency. The proponent used the 35 companies as the sample size, and these companies are consecutively present throughout the time frame (1999-2003). The framework of this paper basically illustrates the interrelationship of the 3 variables present-- the independent variables which consists of the potential determinants in measuring the dependent variable, which is solvency. The research design used is the descriptive method. The centroid method and discriminant analysis were utilized to be able to meet the objectives of the paper. The Statistica program was used for both the analysis. The proponents conclude that the firm size and net working capital (NWC) are the explanatory variables in predicting solvency. The confidence level of the Backward Stepwise model is equal to 96.698% which explains that the calculations are significantly better than chance. Moreover, focus on these two variables must be observed. The proponents recommend increasing the sample size in order to have more accurate results.