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Corporate governance practices and firm performance of listed banking institutions in srilanka.

Mr. Rajendran Kajananthan Reg No: 2007 / com / 08 Index No: com 3201

This Dissertation is submitted to the Faculty of Management Studies and Commerce, University of Jaffna, SriLanka in partial fulfilment of the requirement for the Special Degree of Bachelor of Commerce (Specialized in Marketing Management), Final year Examination - 2010.

Faculty of Management Studies and Commerce, University of Jaffna, SriLanka, 2012

AUTHORIZATION
This is to certify that Mr. Rajendran Kajananthan, Reg. No 2007/COM/08 of the Commerce Degree Program, Faculty of Management Studies and Commerce is authorized to do an independent research study on Corporate governance practices and firm performance of listed banking institutions in srilanka and submit the dissertation in the partial fulfilment of the requirements for the Degree of Bachelor of Commerce in 2012.

Date

------------------------Mr.K.K.Arulvel Coordinator Commerce Degree Program Faculty of Management Studies and Commerce University of Jaffna Sri Lanka

Faculty of Management Studies and Commerce University Of Jaffna


DISSERTATION CONFIRMATION FORM

1. Name of Supervisor 2. Name of Student 3. Registration No 4. Title of Dissertation

: : : :

Mrs.R.Yogendrajah Mr. R.Kajananthan 2007 / C / 08 Corporate governance practices

and firm performance of listed banking institutions in srilanka.

.. Date

......................................... Mr.K.K.Arulvel. Coordinator / Commerce Degree Program Faculty of Management Studies and Commerce University of Jaffna Sri Lanka Signature of student Signature of supervisor

Date of discussion

Abstract: Introduction: Governance may be said to be all about effective, transparent and
accountable administration of affairs of an institution by its management, while protecting the interests of its stakeholders including shareholders, creditors, regulators and the public. The term corporate governance came into popular use in the 1980's to broadly describe the general principles by which the business and management of companies were directed and controlled. Although its use is now common, and the objectives to be achieved thereby generally understood, there is no universally accepted definition of corporate governance. The Banking and financial sector is easily distinguishable from the others. Corporate governance at banking institutions, if implemented in a sound and consistent way, becomes one of the pillars for maintaining confidence in a banking institution and in the banking system in general. A preponderant factor in building and maintaining trust is having a proper corporate governance framework in place in banking institutions. Purpose: The Bank is required to mandatorily comply with the Corporate Governance rules of the Code of Best Practice of Corporate Governance laid down as per Central Bank Direction No. 11 of 2007 as amended and also the Colombo Stock Exchange rules of Corporate Governance for listed entities which became mandatory for banks with effect from the financial year January 2009.before that compliance with the ICASL/SEC code of best practice on corporate governance was on a voluntary basis. Corporate governance research has also evolved along a similar trajectory. The purpose of this study was to examine the relationship between corporate governance practices and firm performance in listed banks in srilanka, and examine the impact of corporate governance on firm performance as a result of the adoption of best practice on corporate governance in 2005 and extent of changes to corporate governance practices over four years after (2005, 2006, 2007, 2008, 2009, 2010). Design/methodology/approach: In an empirical study, leadership structure, board composition, board committees, board size , board meeting to predict the firm performance were be examined. This study was a comparative analysis to gauge the changes to corporate governance practices over three years beginning from 2008 to 2010. A sample of 11 listed banks were selected from database of Colombo stock exchange for the during the period 5years from 2006 to 2010. The selection was determined by the availability of data for years. Data was obtained from annual reports. The data was analyzed with SPSS to obtain quantitative measures of descriptive statistics, Spearmans correlation, regression analysis and analysis of variance. Findings: this study provided evidence in support of a positive relationship for separate leadership, board composition, board committees and firm performance .In this study, the positive relationship between corporate governance structures, separate leadership, board composition, board committees and firm performance indicated that firms had implemented corporate governance strategies, which had resulted in higher profitability. This study supported the agency theory propositions that good corporate governance practices enhance boards accountability to shareholders and improve a companys performance. Research limitations: The scope of the study was limited to the 11 listed local banks in the Colombo stock exchange. It represented only one part of bank finance and insurance among 20 sectors. Practical implications: This study has significant implications for the corporate sector, investors, policy makers, international agencies, government and stakeholders, due to the importance of the corporate success to the economy of the country. The code of best

practice on corporate governance was made mandatory for all listed companies, which was issued jointly by ICASL and SEC in 2007 and the new companys Act was issued in 2007. The results of this study will show the effectiveness of corporate governance in Sri Lanka. Key words: corporate governance, leadership structure, board composition, board

committee, corporate reporting practices and firm performance.

Acknowledgement
First of all, I would like to thank Mr.K.K.Arulvel, the head of the Department of Accounting, who willing granted permission for the title Corporate governance practices and firm performance of listed banking institutions in srilanka for the dissertation, a component of my final degree programme I place my sincere gratitude on record to reword to my supervisor, Mrs.R.Yogendrajah , Head of the Department of finance, who advised and guided to me generously throughout the research pursuit. Further, this research could not have materialized without encouragement and advice from Prof. T. Velnampy, Dean, faculty of Management Studies and commerce. I also express my thanks to Dr. B.Nimalathasan, senior lecturer of the Department of Accounting, for his great support.

Finally, I thank to all of the friends and others who helped me in numerous ways in preparing my dissertation as a successful one.

K.R.KAJA Researcher

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