The Impact of Corporate Governance on Firm Performance in Listed Firms in Sri Lanka

Abstract

The literature is conflicting on the impact of corporate governance on firm performance. Hence, this study examined the effect of corporate governance compliance on the firm performance based on the annual data from 2017 to 2022 for a purposively selected sample of 40 firms listed on the Colombo Stock Exchange. A corporate governance index was constructed based on 29 codes of the best practices in Sri Lanka to measure corporate governance compliance. Firm performance was measured using EPS and ROE. Further, two control variables, i.e., firm size measured in terms of total assets and firm age calculated as the number of years since the establishment, were included in the model. The regression results suggest that corporate governance has a statistically significant positive effect on firm performance. Thus, these findings highlight the necessity of persuading firms to comply with the best practices of corporate governance to improve firm performance.