Impact of Corporate Governance on Firm Performance of Listed Food, Beverage and Tobacco Companies in Sri Lanka.

Abstract

This paper examines how Corporate Governance (CG) influences the firm performance of the listed Food, Beverage, and Tobacco (FBT) sector companies in Sri Lanka. Although the researchers have reported the importance of CG globally, there is still little empirical research on the influence of CG on the FBT sector in Sri Lanka due to the lack of studies in the area other than banking and financial sector. This paper analyses this impact by using a purposive sample of 29 listed companies (192 firm-years, 2018/2019-2024/2025) from a population of 46 companies. CG was measured through the audit committee index, the remuneration committee index and the mandatory policy index, while firm performance was measured by using ROA, ROE and Tobin's Q, controlling for firm age and firm size. After testing the assumptions such as linearity, normality, multicollinearity and heteroscedasticity, the Hausman test indicated the choice of random effect for ROA and the fixed effect for ROE and Tobin's Q. Results revealed that remuneration committee was positively associated with ROA and ROE, while the audit committee was positively associated with ROA and Tobin's Q, whereas the mandatory policy areas were negatively associated with ROA. The findings support agency theory and indicate that the governance practices are more important than the structural aspects, and that the regulators should focus on the application of governance, rather than formal compliance.