Abstract:
Corporate governance is in the limelight across the globe as result of a series of
corporate failures directly attributable to agency issues. Consequently, many
countries have formulated guidelines on corporate governance and
incorporated into listing rules as well. Nevertheless, neither the level of
compliance nor the effectiveness of the best practices is known without doubt.
Therefore, this study measures the corporate governance compliance and
investigates the effect of compliance on firm performance using a sample of 100
firms listed in Colombo Stock Exchange. Compliance was measured using a
corporate governance index while firm performance was measured using ROA
and Tobin’s Q. Findings showed a higher compliance in 2018 compared to 2014
while the compliance was higher in larger firms compared to their smaller
counterparts. Nevertheless, an association between compliance and firm
performance was not observed contrary to conventional literature. The
evidence suggests that the claims made in stewardship theory may be valuable
in redefining what constitutes corporate governance in Sri Lanka.
