An Evaluation of the Compliance of Sri Lankan Listed Companies with Corporate Governance Principles and Best Practices

Abstract

This study examines compliance with corporate governance principles and best practices by companies listed on the Colombo Stock Exchange by constructing a novel and comprehensive corporate governance index using a sample of 133 firms in 2009 and 2016. Overall, corporate governance improved during the sample period. Corporate governance also improved across all sub-areas of corporate governance, namely board of directors, shareholders, stakeholders, disclosure and transparency, and CEO and management. Moreover, corporate governance improved across all industries except for healthcare. Telecommunications, hotels, manufacturing, energy, and trading sectors show the largest increases while stores, banking, construction, services, and plantations have the lowest improvements. Services and stores sectors have relatively weaker corporate governance while telecommunications, diversified, banking, hotels, manufacturing, and energy show stronger governance. This study adds to the extant evidence on emerging markets and provides important evidence for policymakers to formulate and strengthen corporate governance in Sri Lanka.