The Impact of Being Compliant with Best Practices of Corporate Governance on the Financial Performance of Listed Companies in Sri Lanka (With special reference to the Dominant Industry Sectors)

Abstract

Code of Best practice on Corporate Governance and Rules on Corporate Governance were introduced in 2008 and many companies are being taking actions to comply with these conventions from 2008. The main objectives of the study are to measure the level of compliance with the best practices of corporate governance and to examine its impact on the financial performance of Listed Companies in Sri Lanka. A Sample of 60 companies is selected randomly based on probability proportionate sampling technique and secondary data are collected for the years of 2009/10 & 2012/13. The level of compliance of companies which is measured through descriptive statistics is found to be around 56% and 75% in 2009/10 & 2012/13 respectively. The results derived through multiple regression analysis reveal that being compliant with board effectiveness and accountability & audit have significant positive impact on financial performance of listed companies in Sri Lanka in 2012/13, whereas that is absent in 2009/10. Hence, it is concluded that the level of compliance with best practices is being continuously improved after the introduction of the Codes whereas the improved level of compliance directly influences the performance of the corporates in Sri Lanka.