The Effect of Corporate Governance on Firm Performance: A Study on Listed Firms in the Colombo Stock Exchange.

Abstract

The previous research studies on corporate governance have produced conflicting evidence regarding its impact on firm performance. This study aims to address this gap by assessing the compliance level of corporate governance practices and examining their effect on firm performance. A sample of 50 companies was selected from 282 firms listed on the Colombo Stock Exchange. Data was collected from audited annual reports published by the Colombo Stock Exchange over a five-year period, from 2019 to 2023. To measure corporate governance, the study applied a corporate governance index, while firm performance was assessed using return on equity (ROE) and return on assets (ROA). Firm size and firm age were included as control variables. A descriptive statistical analysis was conducted to evaluate the level of compliance with corporate governance best practices. Regression analysis was employed to determine the impact of corporate governance on firm performance. The descriptive analysis revealed that most firms adhere to corporate governance best practices to enhance their performance. The results of the regression analysis revealed that corporate governance has a statistically significant positive effect on ROA. However, the results indicated a statistically insignificant positive effect of corporate governance on ROE.