Abstract
The purpose of this study is to analyse how the adoption of corporate governance structures affects the performance of SMEs in Sri Lanka. For this purpose, we examine the effect of board composition, board size, board and staff skill levels, board leadership (duality), and family ownership on firm performance. To obtain unbiased estimators for the effects of the independent variables, contextual factors such as firm age, firm size, and debt ratio are included as controls for corporate governance structure and performance relationships. Panel regression analysis is used to estimate the relationship between corporate governance and performance. The results show that all measures including board composition, board size, board and staff skill levels, board leadership (duality), and family ownership have significantly positive impacts on profitability. Corporate governance can greatly assist the SME sector by infusing better management practices. It is also clear that corporate governance structures influence the performance of SMEs in Sri Lanka. The finding also shows the implications of SMEs gaining access to finance as a result of adopting a good governance system.
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