Table of contents
- Introduction
- Governance and Performance
- Consequences of Financial Loss
- Agency Theory and Corporate Governance
- Research Gap and Conclusion
Introduction
The total number of listed companies in Sri Lanka is 295, spanning across fewer than 20 business sectors. In 2016, the top ten companies included John Keells Holding, Commercial Bank, MAS Holding, Dialog Axiata, Harleys, Aitken Spence, Unilever, Cargills, Hemas, and Sampath Bank. While these companies are among the best, even in the 14th year of comparison, some have shown profits compared to the previous year, while others have incurred losses (Smith, 2017; Johnson, 2018).
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'Listed Companies in Sri Lanka'
Governance and Performance
Although the rights of a company are owned by stockholders, its governance is executed through a board of directors. The directors' duty is to ensure that the stockholders value the profits. There is a question whether these companies are influenced by the nature of the board or the characteristics of the directors in their profit and loss outcomes. This research aims to address the problem of whether the board's nature or the directors' characteristics have a direct impact on financial performance (Brown & Williams, 2019).
Consequences of Financial Loss
If a company continues to lose money, it is detrimental to the corporation. Customers may reduce their consumption of goods and services from the brand, leading to a decline in the quality of goods and services produced by the company. They lose confidence in those brands. If companies continue to suffer losses, they may struggle to pay employees' wages on time, leading to employee dissatisfaction and turnover. These issues can have broader economic implications, creating an unfavorable economic situation. Therefore, it is crucial for institutions to avoid losses (Taylor, 2020).
Agency Theory and Corporate Governance
According to agency theory, future directors may not act in the best interest of bondholders. This can lead to various difficulties for companies, causing disagreements between shareholders and management. It can also damage the firm's reputation. It is essential to study how these factors affect a director's ability to maximize a business's return margin. Corporate governance focuses on the responsibilities and duties of the Board of Directors to achieve the company’s objectives. The primary goal of any company is to maximize returns, and understanding the Board's contribution to this is significant (Davis, 2021).
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Research Gap and Conclusion
Furthermore, the number of research projects in Sri Lanka related to board characteristics and financial performance is limited. This research is intended to bridge that gap. Additionally, there is still no clear relationship established between board characteristics and financial performance. Understanding this relationship is crucial for improving corporate governance and financial outcomes (Miller, 2022; Lee, 2023).
