Abstract:
The issue of Corporate Governance arises because of the separation of ownership from control in
modern corporations. The separation of ownership and control has had profound consequences on the
nature of Corporate Governance. In Sri Lanka, the Financial Services Industry also plays a
considerable role in economic development and business improvement. This paper seeks to
investigate the relationship between Corporate Governance and firm’s performance of twenty banks
listed at the Colombo Stock Exchange.
The two variables related to Corporate Governance are included in this study (Board, Audit
Committee). The performance of Corporate Governance is analyzed through Tobin’s Q, while
performance of the firms is measured by return on assets (ROA) and return on equity (ROE). The data
set is obtained from the annual reports for the year 2008-2010. The multiple regression models are
applied to test the significance of Corporate Governance and firm profitability. The result shows that
the Board and Audit Committee have a significant relationship with Tobin’s Q, which confirms a
significant effect in measuring performance of the firm. It means that firms with good Corporate
Governance measures perform well as compared to the firms having no or fewer Corporate
Governance practices.
