Abstract:
Corporate governance plays a vital role in strengthening accountability and transparency in emerging economies, particularly Sri Lanka. Despite extensive studies on the Board composition-performance nexus, the association remains in the conceptualization stage, and limited empirical attention has been paid to the Sri Lankan context. Therefore, this study examines the effect of board composition on the financial performance of non-financial firms listed on the Colombo Stock Exchange. A quantitative, explanatory research design was applied, using secondary data from 55 sample companies over the period from 2015 to 2024. Return on assets and return on equity were used as proxies for financial performance, while board size, board independence, CEO duality, gender diversity, and non-executive directors were employed as proxies for board composition. The natural logarithms of firm size and leverage were used as control variables to improve the robustness of the study. The study comprises 550 firm-year observations and analyses the data using SPSS. The descriptive statistics and multiple regression analysis were employed to examine the association between corporate governance and financial performance. The results of the study indicate that board composition, as a whole, has a notable positive influence on financial performance. In particular, positive relationships can be observed between gender diversity and CEO duality and financial performance, even though there seems to be a negative relationship between board independence and leverage and financial performance. More interestingly, board size and the number of non-executive directors do not indicate any significant association. These findings underscore the importance of sound board design in enhancing financial performance while offering significant implications for managers, investors, and policymakers in formulating robust corporate governance practices.
