MSA & Safna, HMF

Nimsith, S.I

Riyad Rooly, M.S.A

Safna, H.M.F

Shibly, F.H.A

English

IR South Eastern University of Sri Lanka

South Eastern University Arts Research Session 2015 
 
36 
Corporate Governance Practices and Firms’ Financial Performance of Manufacturing 
Companies in Sri Lanka 
 
Nimsith, SI
*
,  Shibly, FHA,  Riyad Rooly,  MSA  & Safna,  HMF 
 
  
 
Abstract  
 
Corporate governance came into popular use in the 1980‟s to broadly describe the general principles by which the 
business and management of companies were directed and controlled. It expected much attention during the last two 
decades owing to certain economic reforms in the countries and dilemma of economic history such as regional 
market crisis and large corporate debacles. Good corporate governance maximizes the profitability and long term 
value of the firm for shareholders. There is enormous awareness among the intellectual to carry out the researches in 
the corporate governance. The main objective of the study is to identify the significant difference between corporate 
governance practices on Firm performance. Further, the secondary objective is to suggest the listed manufacturing 
firms in Sri Lanka to obtain the efficiency in the firm performance through the adoption best corporate governance 
practices. The present study is initiated to examine corporate governance practices and firm performance with the 
samples of 28 manufacturing companies in the Colombo Stock Exchange using the data representing the periods of 
2007 – 2014. Data on corporate governance and firm performances were collected from secondary sources as annual 
reports of the manufacturing companies, Colombo stock exchange publications and URL of the Colombo stock 
exchange. Analysis was conducted using the IBM SPSS statistics 20 software package. Ratio analysis, descriptive 
statistics techniques and correlation analysis were used to find out the significant difference between corporate 
governance practices on firm performance. Board Leadership Structure (BLS), Board Committee (BC) and 
Proportion of Non-Executive Directors (PNED) were used as the determinants of corporate governance, whereas 
return on assets (ROA) was used as the measures of firm performance. The study found that, determinants of 
corporate governance are not correlated to the performance measures of the organization. Correlation analysis shows 
BLS and BC are negatively correlated with ROA, which is not significant. PNED is positively correlated which is 
not significant. Regression model showed that corporate governance doesn‟t affect companies‟ ROA. Finding 
revealed that, there is no significant relationship between the firm performance among corporate governance 
practices as board leadership structure, board committees, and proportion of non-executive directors. Researchers 
have suggested that, corporate governance practices should be reviewed in the systematic way to frame the best 
practices in the present Sri Lankan context. 
 
Key words: Corporate Governance, Firm Performance, Board Leadership Structure, Board Committee, Proportion 
of Non-Executive Directors 
 
  
                                                          
To whom correspondence should be addressed: sinimsith@gmail.com  
*Lecturer, Department of Arabic Language, South Eastern University of Sri Lanka.  


Corporate governance practices and firms’ financial performance of manufacturing companies in Sri Lanka

http://ir.lib.seu.ac.lk/bitstream/123456789/1562/1/Book%20of%20Abstracts%20-%20Page%2048.pdf

Corporate governance practices and firms’ financial performance of manufacturing companies in Sri Lanka

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