Sri Lankan Companies Research Articles

Audit Committee Characteristics and their Impact on Intellectual Capital Disclosure: A Study of Listed Manufacturing Companies in Sri Lanka

In the today’s knowledge based economy, intellectual capital (IC) is considered as a strategic asset which determines the value of the company. Different practices of disclosing IC information in annual reports that do not show the real financial position of a company, is a main problem in Sri Lankan companies. The objective of this study was to find out the impact of audit committee characteristics on Intellectual Capital Disclosure (ICD) of listed companies on the Colombo Stock Exchange (CSE) for a period of five- years from 2012/2013 to 2017/2018. The ICD index comprised of 30 items in terms of Relational Capital Disclosure (RCD), Structural Capital Disclosure (SCD) and Human Capital Disclosure (HCD). The data was analyzed using correlations and regression analysis. Most of the Sri Lankan Listed companies disclosed ICD in text, sentences, pictures, tables and graphs in line with the Global Reporting Initiative (GRI) guidelines in their annual reports. ICD was measured by a disclosure index score. The independent variables comprised various forms of audit committee characteristics: audit committee size, frequency of audit committee meetings and audit committee independence. The study confirms that the size of the audit committee and audit committee meetings are important attributes to explain ICD in Sri Lanka. However, the study found a negative significant relationship between ICD and audit committee independence. Keywords: audit committee independence, audit committee meeting, audit committee size, intellectual capital disclosure

Factors influencing sustainability reporting by Sri Lankan companies

PurposeThis paper aims to investigate the key company characteristics which influence sustainability reporting by publicly listed companies in Sri Lanka.Design/methodology/approachPanel data analysis is conducted to analyse sustainability reporting of 84 publicly listed companies from 2012 to 2015.FindingsCompany size and usage of the GRI guidelines are found to be the most relevant company characteristics associated with sustainability reporting by listed companies in Sri Lanka. Unexpectedly, ownership and industry sector do not show strong influences on the extent of sustainability reporting over the study period compared with prior studies.Research limitations/implicationsLarge companies which follow the GRI guidelines are more likely to report in an elaborate manner, indicating the influence of standards setting bodies in Sri Lanka. This means Sri Lankan companies pay attention to global business practices, given the current re-development phase Sri Lanka is experiencing after the end of the civil war.OriginalityThis study is one of the few studies that examine sustainability reporting in a country set against a backdrop of war in the South Asian region. Besides this, it extends the previous research on sustainability reporting and variables such as company ownership, GRI usage, company size and industry sector in a developing country context.

Revisiting External Pecking Order Hypothesis: Evidence from Sri Lankan Companies Capital Structure

This research is based on pecking order theory, which is one of the major capital structure determinant theory, driven by the information asymmetry. The purpose of this research is to investigate whether the pecking order theory provides an accurate description of companies financing choices in the context. Further, to examine whether informational asymmetry plays an important role in determining the financing hierarchy, and whether the financial deficit variable plays a key role determining the capital structure, the analysis has been conducted by utilizing a unique dataset from the Sri Lankan listed companies within multiple industrial sectors from 2011 to 2017. Empirical analysis has been done based on Panel data analysis model with regression tools suggested. The findings suggest that company’s follow original pecking order hypothesis where companies’ preference towards debt is higher than equity in determining their capital structure. Moreover, financing choices are contingent on informational asymmetry. Moreover, the financial deficit variable has a significant impact compared to four more conventional capital structure determinants.

The Impact of Firm Characteristics on Corporate Internet Reporting: Evidence from Sri Lankan Listed Companies

Corporate Internet Reporting (CIR) is a significant communication phenomenon in the world. Research indicates that there are several CIR issues in developing countries as well as there is a dearth of the studies in the Sri Lankan context. Accordingly, this study is designed to identify the current level of CIR and what are the significant firm characteristics that impact CIR in the Sri Lankan context using a quantitative research approach using secondary data. The level of corporate internet reporting is measured using a disclosure index on CIR. Multiple ordinary least squares regression, multiple ordinal regression and correlation analyses are used to identify the significant determinants of CIR. The results indicate that of 100 companies examined, despite 83% of Sri Lankan companies have their own corporate websites, the overall level of CIR is only 16.2%. The content disclosure sub-score is on average 12.52% and the level of presentation format disclosure sub-score of CIR is 26.88%. Further, the explanatory analyses suggest that variables, auditor size, market capitalization,and the representation of hotel, travel and service industry are significant firm characteristics that impact the level of CIR. Overall, however, mixed evidence is noted. This study addresses the knowledge gap in identifying levels of CIR and firm characteristics and expected to have significant policy implications.

Status and Challenges in Implementing Beyond Budgeting: Evidence from Sri Lanka

Due to the weaknesses of Traditional Budgeting and Better Budgeting, budgeting moved to its third wave called Beyond Budgeting. Beyond Budgeting is an alter­native, coherent management model that enables companies to manage performance through processes spe­cifically tailored to suit today’s volatile market.
 
 Although, researchers have explained how organisations should move to Beyond Budgeting they have not discussed as to why some organisations are lagging behind in terms of Beyond Budgeting implementation. Therefore, this study intends to address and bridge the above research gap. Specifically, the study investigates how far the existing organizational set-ups support an advanced model called Beyond Budgeting and explores why can or cannot these organisations move to Beyond Budgeting.
 
 The study carries out a multiple case study approach because it provides an in-depth analysis of budgetary processes of four reputed Sri Lankan companies. Data was collected through semi-structured interviews and documentation reviews where data triangulation was used to validate the data.
 
 Based on the findings the study concluded that in the existing organizational set-ups, leadership principles of Beyond Budgeting were strongly present compared to process principles. It was also found that complications in setting rolling forecasts, bureaucracy, lack of virtues, dependency culture on budgets to evaluate performance, perceiving dynamic goals as too ambiguous to set and lack of competitor intelligence as main barriers of moving to Beyond Budgeting concept.

Use of Methods to Determine the Cost of Capital in Sri Lankan Companies

Use of Methods to Determine the Cost of Capital in Sri Lankan Companies

Evaluation of Cutting Time and Waste Generation in Different Band Sawmills in Sri Lanka with Special Reference to Teak Timber

In recent years, due to rising raw material and labor costs, increasing attention is being devoted to improve wood sawing practices. While a high cutting rate is still among the most desired characteristics, other factors such as improved cutting accuracy and surface quality, reduced kerf losses, noise, downtime, and maintenance of the machine are becoming increasingly important. However, band sawmilling have advantages over circular saws which include higher cutting speeds lower kerf waste, and typically lower noise levels. Considering above advantages several Sri Lankan companies have now established band saw milling factories. Thus the key objectives of this study were to evaluate cutting time of band sawmills and to investigate waste generation. Three different band saws (TRAK-MET TTP 600 premium; TM, Wood-Mizer LT20; WM, and Veheran; V) which are commonly used in Sri Lanka were used to this study. Evaluation of cutting time and waste generation in different band sawmills were done with special reference to Teak timber. Results show that the fastest cutting time in WM (mean cutting time of 27s), medium cutting time in TM (mean cutting time of 60s) and the slowest cutting time in Veheran (mean cutting time of 180s). The factors such as tooth profile, setting value, sharpening frequency, status of lubrication, tensioning pressure of the blade and capacity and the condition of the machine may have affected to the fastest cutting time. According to the results of evaluation of saw dust Veheran showed the highest wastage owing to high kerf and factors such as poor lubrication, lower tensioning pressure. Moreover, cutting time negatively correlated with the lubrication and saw tension in band sawmills. Therefore, it can be concluded that proper saw mill management is necessary for reduction of timber wastage and increase the efficiency of the industry. Keywords: Band sawmilling, Waste generation, Teak, Lubrication, Tensioning pressure

Corporate Finance Practices in Sri Lanka

The aim of this study was to investigate the use of corporate finance practices in terms of capital budgeting, cost of equity capital and capital structure in Sri Lanka. A comprehensive primary survey was conducted of 38 out of 150 financial officers of companies listed on the Colombo Stock Exchange (CSE) in Sri Lanka. Stratified random sampling was used to select the participants in order to represent the different sectors in CSE. Collected data were then analyzed by applying mean and percentage analysis. Results of the survey revealed that NPV was the most frequently ?always? cited capital budgeting method, followed by IRR and PB. CAPM was the most preferred method to calculate the cost of equity capital followed by average historical rate of return on common stock. Remarkably, most firms would use a discount rate for entire company to evaluate the project. Further, it was evaluated that how finance professionals make adjustments for risk factors. It was concluded that risk of unexpected inflation, interest rate risk, term structure risk, business cycle risk, size based risk, market to book ratio and momentum were mostly adjusted by discount rate while commodity price risk, foreign exchange risk and distress risk were mostly adjusted by cash flow. Further, this study was to find out whether Sri Lankan finance professionals behave as expected by pecking order theory of capital structure patterns. Findings of the study are in line with the pecking order theory that firms are having preference to internal finance for their capital. This research has proffered a more reliable and comprehensive analysis of corporate finance practices in Sri Lankan companies.

Do Firms' Characteristics Make a Difference of the Choice of Capital Budgeting Practices? Evidence from Sri Lanka

The aim of this study was to examine the differences of the choice of capital budgeting practices in terms of firms’ characteristics of Sri Lankan companies. The primary data were garnered from 186 financial officers using self-administered questionnaires. Collected data were then analysed using independent sample t- test. The Results of the study revealed that the use of simple capital budgeting practices were mostly preferred by small sized firms and mainly managed by finance professionals with non-MBA educational qualifications and short tenure. Sophisticated and advanced capital budgeting practices were used mostly by large firms; and were mainly managed by finance professionals with master of business administration qualification and long tenure. According to the industry differences, accounting rate of return was primarily applied by non-MBA qualified financial officers and was also preferred by non-manufacturing firms. None of the other methods made any significant differences in terms of type of industry. Sophisticated capital budgeting practices were determined by the size of the capital budget, advanced capital budgeting practices were determined by both the size of the capital budget and the educational qualifications of the finance professionals. In a similar vein, simple capital budgeting practices were determined by the size of the capital budget, the educational qualifications of the financial officers, and type of industry. Overall, this study has made parametric contributions to the choice of capital budgeting practices in terms of firms’ characteristics of Sri Lankan companies. The findings of the study are useful to the investment decision makers when they are appraising investment projects.

Corporate Governance and Cash Holdings: Empirical Evidence from an Emerging Country, Sri Lanka

This study examines the influence of corporate governance practices on cash holdings of Sri Lankan listed companies. It develops hypotheses about the relationship between cash holding and corporate governance practices such as size, frequency of meetings, independence, independent chair and gender diversity. Using multiple regression analysis on data collected from the corporate annual reports of 90 listed companies, the study finds that corporate governance practices such as board size and gender diversity have a significant negative influence on cash holdings as well as independent chair has a significant positive influence on cash holdings. However, there is no evidence that board meetings affect cash holding in Sri Lankan companies. The study contributes to the literature on the factors that make variation in the amount of cash holding of the listed company and it may be useful for financial managers, business analyst, financial controller, operations managers, investors, financial management consultants and other stakeholders.

Asset Growth and Profitability of PLCs in SAARC Economies

Purpose: Past research concerning companies' asset growth and profitability comparisons within and across SAARC (South Asian Association for Regional Cooperation) economies is extremely limited and the purpose of this research is to fill that gap.
 Design/methodology/approach: This research accessed data (2009 to 2013) from Thomson Reuters Data stream, drawn comparisons for years 2009-13, and used Tukey's HSD test for analyses.
 Findings: Findings reveal that profitability of Pakistani, Indian, and Bangladeshi companies was overall better in 2010 and 2011 pointing towards these countries' successful exit from crisis. These years marked higher asset growth as well among Indian, Bangladeshi, and Sri Lankan companies. Importantly, countries' cross comparisons reveal that profitability of Bangladeshi companies was better than others in all years, however, Sri Lankan companies also had higher profitability than Indian ones during 2011-13 and had higher asset growth compared to Pakistani companies in 2012 and 2013. Overall, Pakistani companies had lowest asset growth.
 Implications/Originality/Value: The study updates information concerning SAARC economies’ corporate and business world and demonstrates that asset growth and profitability trends could be inspired from international events and an economy's condition. Future studies could be industry specific; include other SAARC countries using a different criterion; and use different ratios for analysis.

An Empirical Study of the Impact of User Training and Attitude towards ERP Implementation in Selected Companies in Sri Lanka

Implementation of an Enterprise Resource Planning (ERP) is a radical change in an organization. Some of the staff are willing to accept new challenges whereas others are not. Therefore, there is a gap between attitudes of the staff who would involve with the ERP systems and desired objectives of the system. Conducting different types of user training programs can improve communication with employees. It makes them to change their attitudes. This study focused on user attitudes and the effectiveness of training towards the ERP implementation in Sri Lankan Companies. The data collection was done through a series of structured interviews and a questionnaire from the five top recently ERP implemented companies in Sri Lanka. One-way ANOVA result shows the users’ attitudes vary from different age groups and the education level of the employees. Further, findings reveal that attitudes have a positive impact depending on their income level and the number of years that they worked for the company. Based on the analysis it can be conclude that the way of training should change.

Corporate Governance and Cash Conversion Cycle: Evidence from Listed Companies in Sri Lanka

The purpose of this study is to examine the impact of corporate governance on cash conversion cycle of Sri Lankan listed companies. This study adopted a co-relational research design. A sample of 90 Sri Lankan companies listed on the Colombo Stock Exchange for a period of five years (from 2011/12–2015/16) was used. The findings show that large number of directors and independent directors on the board and more number of meetings in a year shorten the cash conversion cycle (CCC) of Sri Lankan listed companies. The study adds to the literature on the factors that shorten the CCC of the listed company and it may be useful for financial managers, business analyst, financial controller, operations managers, investors, financial management consultants and other stakeholders.

Predicting Corporate Financial Distress in Sri Lanka: An Extension to Z-Score Model

The main purpose of this study is to develop a better financial distress prediction model for the Sri Lankan companies using the Z-score model. Fourteen variables have been selected consisting of accounting, cash flow and market based variables. Multivariate Discriminate Analysis (MDA) was used as the analytical technique and stepwise method was used to select the variables with the best discriminating power to a dataset of sixty-seven matched pairs of failed and non-failed quoted public companies over the period 2002 to 2011. The final models are validated using the cross validation method. The results indicate that a model with four predictors of earnings before interest and taxes, cash flow from operations to total debts, retained earnings to total assets, and firm size have achieved the classification accuracy of 85.8% in one year prior to the distress with a very low type I error. Moreover, the model has correctly classified the cases by 79.9% and 69.4% in two year and three year prior to distress respectively. The study has further revealed that the companies with negative cutoff value fall into distress zone while the companies with positive cutoff values fall into safety area. Hence, the study concluded that the companies with cutoff values approximately zero should be considered on mitigating actions for financial distress not only on the accounting information but also on the cash flow and market data.

Macroeconomic and Firm Specific Determinants of Stock Returns: A Comparative Analysis of Stock Markets in Sri Lanka and in the United Kingdom

This paper examines the relationship between macroeconomic and firm-specific determinants of stock returns of Sri Lanka and United Kingdom (UK). Our results are based on the fixed effects regression models since those perform statistically better than the random effects and pooled OLS models for Sri Lankan data and the fitted one-way fixed effects firm factor regression indicates that Return on Assets ( ROA) and sales growth rate play a significant role in explaining variation in stock returns in Sri Lankan companies while one-way random effect firm factor model in UK shows that E/P ratio, B/M ratio, fixed assets growth rate, size and ROA are the most dominants priced factors in London Stock Exchange (LSE). The explanatory power of regressions increases considerably when we incorporate macroeconomic indicators controlling for firm effects and results show that inflation, GDP and exchange rate remain leading predictors of stock returns variation in both Colombo Stock Exchange (CSE) and LSE whereas unemployment and Foreign Portfolio Investments (FPI) become statistically significant only in CSE. Thus, it is noted that stock prices of Sri Lankan and UK companies are sensitive to both company and macroeconomic fundamental changes hence, the stock market analysts and investors find that they can make fundamental base trading strategies as publicly available information play a key role in predicting future returns bringing the conclusions of the Sri Lankan stock market is in semi-strong form efficient in doubt.

Economic Value Added (EVA) Disclosure Practices of Sri Lankan Listed Companies

Transparency, disclosures and information sharing with stakeholders, command a considerable degree of value to the accompanying financial statements of any corporate or business enterprise. Investors and stakeholders are increasingly looking at the performance of companies which they have invested their hard earned funds. To meet such expectations, good governed companies do adopt practices which add to enhance the value of financial statements and value to its readers. The ideas of free cash flow and the evaluation of business on a cash basis developed by Modiglaini and Miller (1961) were extended into the concept of the Economic Value Added (EVA) (Stewart and Stern 1971). The traditional financial performance measures have not presented the real shareholder value of an enterprise. Thus, the EVA is one of main evaluation criteria of companies’ commitment with shareholder value maximization. In this context, this research investigated the EVA disclosures in the annual reports of Sri Lankan listed companies. Analyzing annual reports of Sri Lankan largest 85 listed companies over a period of 5 years from 2009 to 2013, the results indicated that 15 numbers of listed companies, as a percentage of 17.65 of the sample disclosed the EVA statement in their annual reports. The study further explored the industry composition, residential status, medium of disclosure, areas of EVA application and extent of EVA related computation prepared and disclosed by EVA reporting companies. Univariate analysis was used to identify the extent of EVA disclosures of listed companies in Sri Lanka and it was found that, existence of significant inconsistencies and irregularities in measurement of EVA and its major components of EVA reporting listed companies. The second part of the study explored that the corporate attributes such as back ground information and financial performance indicators of companies are influenced to the choice of EVA disclosure. Therefore, research performed a comparison of differences between EVA reporting and EVA non reporting listed companies on the basis of their background indicators and financial performance measures. Research employed the two independent sample t-tests to identify the factors influencing to EVA usage and disclosure choice of Sri Lankan listed companies in terms of company size, profitability, leverage etc. Research finds that the EVA usage and EVA disclosure choice of Sri Lankan companies are influenced by the company size, leverage and earnings potential. Further, the study recommends the importance of implementing EVA disclosures as a mandatory requirement for Sri Lankan listed companies.

Ethical Dilemmas for Human Resource Professionals in Handling Sexual Harassment at Workplaces: Cases from Sri Lanka

The aim of this article is to explore the ethical dilemmas faced by Human Resource (HR) professionals when handling sexual harassment in organizations, using a multidimensional framework suggested by Kevin Wooten for studying Human Resource Management (HRM) ethics. Employing a qualitative research approach, HR professionals of 10 Sri Lankan companies operating in different industries were selected for the study using a purposive sampling technique. Data was collected through in-depth interviews and documents. The nature of ethical dilemmas faced by HR professionals (such as misrepresentation and collussion, misuse of data , manipulation and collusion, value and goals conflict and technical ineptness), when handling sexual harassment in organizations within an HRM environment, which is greatly influenced by the legislative/regulatory climate, demographic trends and social climate with organizational, personal and professional ethics overlapping and intersecting in different ways and instances, was revealed . The main areas under sexual harassment that give rise to these ethical dilemmas were identified as; 1) handling complaints without proper evidence and failing to ensure the truthfulness of data 2) handling complaints against key persons, 3) managing tempting behaviours at workplaces in order to prevent sexual harassment occurrences, 4) unawareness about the issue of sexual harassment at workplaces, and 5) the inability to ensure complete confidentiality. Further, the study also explores environmental influences and other competing ethical considerations which influence the occurrence of these ethical dilemmas.

Predicting corporate financial distress in Sri Lanka with reference to Z-score model

Financial Distress is a problem spread all over the world from the history. Even though there are ample research studies on this area, the empirical results on this area provide inconclusive results. The majority of the research works focused only on the bankruptcy and not on the financial distress. Hence, the main purpose of this study is to develop a better financial distress prediction model for Sri Lankan companies using the Z-score model. Multivariate Discriminate Analysis (MDA) was used as the analytical technique and simultaneous estimation method has used to enter the variables in the analysis. The study has examined four accounting ratios for 134 distressed and non-distressed companies from 2002 to 2011. The study has found that the derived model which consists of four accounting ratios is capable of predicting financial distress of quoted public companies in Sri Lanka with 76.9% accurate one year prior to distress. Further, the model has the financial distress predicting ability of 74.6% and 67.2% two years and three years prior to distress respectively. This model can be used to assist investors, creditors, managers, auditors and regulatory bodies in Sri Lanka to predict the financial distress.The Kelaniya Journal of Management, Vol. 3(1); 2014: 1-22

The Capital Structure of Sri Lankan Companies: A Quantile Regression Analysis

This study empirically explores the relationship between firm characteristics and capital structure in Sri Lankan companies. Six years of data for 158 firms listed on the Colombo Stock Exchange are analyzed using a conditional quantile regression. The findings indicate that the capital structure of Sri Lankan firms differ between firms in different quantiles of leverage. These differences are significant with the sign of explanatory variables change with the level of leverage. The results indicate that individual firm’s finance policy needs to be responsive to the firm characteristics and should match with the different borrowing requirements of listed firms.

A Study on Analysis of Managerial Attitudes towards ISO 9001: 2008 Quality Management System Introduction and Implementation Process in Sri Lanka

ISO certification is expected to help organizations to enhance quality and efficiency, improve communications, achieve competitive advantage and to increase in market share, reduce costs and achieve a high stock price. The successful implementation of the ISO 9001: 2008 quality management system standard depends on how the standard is perceived by the companies, therefore identification of managerial perception for ISO 9001 system is vital. This research paper presents the results of an investigation carried out to identify managerial attitudes towards ISO 9001: 2008 quality management systems. To realize this goal, a sample consisting of 73 managers, representing both top and middle managers were selected from organizations functioning in Sri Lanka, covering all sectors including manufacturing, services, construction and others. Data were gathered using self administered questionnaire, through an email survey. Results indicated that Sri Lankan companies have high level of understanding for the purpose of ISO 9001: 2008 quality management system; by both certified groups for ISO 9001: 2008 and organizations those commenced the quality management system implementation. The main motivating factors behind the implementation of ISO 9001: 2008 quality management system for both certified companies and organizations already commence the implementation are to achieve quality improvement. The second most motivator for certified organization is to meet the corporate objectives. The principle perceived benefits of implementing ISO 9001: 2008 by both groups are customer satisfaction, increase quality awareness and reduces the production time. None of the parameters analyzed for understanding the purposes of selecting ISO 9001 quality management system and motivational factors for seeking certifications were statistically significant in both groups. Furthermore this investigation concluded that there is an impact towards ISO 9001: 2008 quality management systems by both certified organizations and organizations those commenced the quality system implementation in Sri Lanka. In addition to that study reveals that majority of organizations are seeking certifications irrespective of their sector and type of the organizations. Therefore, this research is vital for making policy decisions of organizations those who anticipate to implement quality management systems for their operations in the future.