Impact of corporate governance on firm’s return: Special reference to listed entities in Colombo Stock Exchange in Sri Lanka.

Abstract

Corporate governance is a system which comprises the rules and regulations that should be adapted by the firms in order to run the business. The core intent of this research is to investigate the influence of corporate governance mechanisms on firm’s

return of listed companies in CSE. From the published annual reports of 200 non- financial companies, data were obtained during the period from 2015 to 2020. Size of

the board, Board composition, percentage of Institutional ownership and Chief executive duality were considered to measure the corporate governance mechanisms while Return on Equity and Net Profit Ratio were used to measure the firm’s return. According to summary of panel data analysis, Board size and board composition have the positive impact on net profit ratio as well as return on equity even though CEO duality have the positive impact on net profit ratio but not significant on return on equity. The reason for positive impact of board size and board composition on return directors of the board enrolls as spokespersons of the company’s state holders and monitors the performance of the company along with the deeds of the mangers, to increase the return of the company by decreasing the agency cost. On the contrary, the institutional ownership has the negative impact on the corporate Return. Institutional investors will have greater power in making integral decisions of company. This integral decision making results in taking decisions to improve their own benefits rather than the common objective of the company, which is raising the company’s value via enhancing shareholders’ wealth.