1.1 ResearchbackgroundA company is one ofthe business entities. It involves a group of individuals and possessions, whoshare a common goal of making profits.
This group is considered to be a legalperson in the law. Ifa single business or a joint venture, registration activities can be donewithin 14 days of commencement. But business cannot continue until a companycompletes its registration process. Listed companies are called common stockcompanies registered in the stock market. Often these companies are known aspriced companies.
Currently there are 295 listed companies in SriLanka. The listed companies are under 20 sectors. AgencyTheory Thisis a theory based on a company’s ownership and management. Owners of thecompany are its stakeholders, and a company is governed by a board ofdirectors. In the future, the Directors will not act for the benefit of theshareholders. The agency’s theory has been built to prevent this.
The agencytheory is a broad concept, and a number of concepts are needed to understand it. CorporateGovernance Anevaluation of Corporate Governance Practices adopted by Public Listed Companiesin Sri Lanka would be done through this study. The practice of CorporateGovernance in Public Listed Companies could be identified as a mandatory requirement.Even though it is a mandatory requirement, the quality of the practice maydifferent from one company another. Some companies may practice it as it is amandatory requirement.
On the other hand some companies may adopt the corporategovernance code, not merely it is a mandatory requirement. Those companies maypractice it, in order to increase the value to the shareholders. Therefore, thequality of the corporate governance practices adopted may differ from onecompany to another. This study would examine the differences between ofCorporate Governance practices.Corporate Governance Concept was developed on the Agents theory. Corporategovernance is a system that controls and manages a company. Corporategovernance includes equity in partnerships, managers, customers, suppliers,financiers, governments, and communities. Thiswill determine the company’s strategy for designing objectives and how toachieve these goals, the ways in which performance is monitored.
Thepreliminary definition indicates that the company’s board of directors will payattention to duties to achieve those objectives. CG had worked to get theattention of researchers. It plays an important role in controlling large scalefrauds and corporate crises.
Althoughthe company owns the shareholders, its administration takes place through aboard of directors. Therefore, each company has a formal board of directors.The character of the Board of Directors here means the nature ofthe board and the nature ofthe directors. The directors of each firm are diverse. The board size, the composition of the Board, the Audit Committeesize, the composition of the Audit Committees, the CEO duality and thenumber of the meetings was heldare used to identify the nature of the board.
Board sizemeans the total number of directors in the company. The Board of Directors, which decides to makedecisions of a company, determines the board size (Mecklirrg, 2014 ). The number ofdirectors in a company is between 5 and 13.Thenumber depends on the size of each company. According to Agency theory, smallerboard size is effective. Thecomposition of the board can be executive and non-executive Directors.Non-executive directors can also be divided into two categories as independent and non-independent. Here, it looks athow many non-independent directors are from the whole director board (Kakanda, Salim, & Chandren , 2016).
IndependentDirectors mean the number of directors outside the business. Theirconfidentiality and reliability are more confined to the outside. Therefore theindependent non- executive directors are importantwhen making decisions in a company.
As some studies have pointed out, theseindependent non-executive directors are more favorable to business (Kakanda, Salim, & Chandren , 2016). According to agencytheory a majority of independent directors on the board enhance its effective& provide superior performance (Ghabayen, 2012). TheAudit Committee is a sub-committee of the Board of Directors.
The mainfunctions of the Audit Committee are to monitor the process of financialreporting and disclosure, monitor the accounting policies and principles, andmonitor performance and independence. A company must have a qualified AuditCommittee to be listed. It’s important to have a good audit committee for agood management process. The number of members in the Audit Committee is thesize of the Audit Committee. Some studies indicate that the size of the AuditCommittee is small in important.
The reason is that the coordination isdifficult in the presence of large members (Ghabayen, 2012). Thereare independent and non-independent members of an Audit Committee. This isknown as the composition of Audit Committees. Independent Auditors are partiesoutside the business. That is, the parties who are not involved in themanagement of the business.
According to the agency theory, having independentauditors is important to the company. In addition, theboard characteristics can be identified by the CEO duality. If both thepositions of the chairman and the CEO of a company are held by one person, itis called CEO duality. In doing so, the person shallprovide assistance and advice to the board of directors. It also works in thedevelopment and implementation of strategy. The impact offinancial performance on Board meetings is also examined here.
A Board conductsmeetings with a company to discuss plans, strategies, and other issues in acompany’s future plans. Also, Board meetings are held to discuss theperformance of the company over the past year. Here look at how many meetings have been held annually forthis. Board meetings are an important factor that contributes to the creationof important decisions in a company.
These factors canidentify the type of the board. Also uses the board’s gender, experience andqualifications to identify the nature of directors. The Panel’s gender meansthat the whole Board of directors consists of at least two women.The entire directorate consists of some of the listed companies among the maleparties. Other companies have female representations.
This study examines howthe financial performance of a company is affected to this.