THE IMPACT OF BOARD CHARACTERISTICS ON FIRM PERFORMANCE OF LARGEST LISTED COMPANIES IN SRI LANKA

Abstract

The purpose of this study is to examine the relationship between selected board characteristics and firm performance on listed companies on the Colombo Stock Exchange (CSE) in Sri Lanka. The study is performed on 41 non-financial and financial year’s ended on 31st March listed companies of CSE according to the highest market capitalization as of 20th January 2020. Descriptive statistics, correlation analysis and multivariate regression analysis are used to analyze the relationship between selected board characteristics and firm performance. As per the findings of this study, board composition is positively associated with Return on Asset (ROA) and Return on Equity (ROE). However, the gender diversity of the board shows a negative relationship between ROA and ROE. Other selected board characteristics of this study (Board size, CEO duality, frequency of board meetings, directors’ shareholding, presence of nomination committee) demonstrate ambiguous results with ROA and ROE. The findings of the study are supportive for policymakers, especially the top-level management, and decision-makers in respect of obtaining strategic decisions about the firm to establish an effective board and evaluate the effectiveness of the board inside the firm. Moreover, it will be useful for regulators to strengthen prevailing governance mechanisms attributed to the board of directors (BOD). Additionally, the finding will contribute to narrowing the existing indefinite results regarding the relationship between board characteristics and firm performance.