THE IMPACT OF CORPORATE

GOVERNANCE PRACTICES ON
FINANCIAL DISTRESS OF LISTED
COMPANIES IN SRI LANKA

Student Name: W.M.I.M.Walisundara

Supervisor’s Name: Dr. Kumara Uluwatta
 INTRODUCTION

• The impact of corporate governance practices on firm financial

distress has become an important discussion topic because of the
accidents of economic history such as regional market crisis and
large corporate debacles.
 RESEARCH QUESTIONS
• What is the relationship between CEO duality and financial distress?
• What is the relationship between board size and financial distress?
• What is the relationship between board activity and financial distress?
• What is the relationship between board independence and financial
distress?
• Whether there is any significant compliance difference of corporate
governance practices between distressed and non-distressed
companies?
• Primary objective
• To find out impact of corporate governance practices on the financial
distress of listed companies in Sri Lanka.
CONCEPTUAL FRAMEWORK

CEO duality
INDEPENDENT VARIABLES

CONTROL VARIABLES
DEPENDENT VARIABLE
Board Size
Financial Solvency
Board Activity Distress Ratio
Board
Independence Firm Size
 HYPOTHESES

H1: There is a positive relationship between CEO Duality and

financial distress.
 H2: There is a negative relationship between Board size and
financial distress.
 H3: There is a negative relationship between Board Activity
and financial distress.
 H4: There is a negative relationship between Board
independence and financial distress.
DATA COLLECTION
Secondary data collection method were use to collect data. And
also this secondary data collected by using the annual reports
submitted to the Colombo stock exchange (CSE) during the
period of 2013 – 2017.
POPULATION
The population of this study consists of all the listed companies
in Colombo Stock Exchange (CSE) in Sri Lanka other than bank,
finance and insurance sector due to its non-comparable nature.
SAMPLE
Sample of this study consist of 12 financial distress and 12 non-
distress companies listed in Colombo stocks exchange
representing all industry sectors of the CSE other than bank and
finance.
DATA ANALYSIS ( SPSS)
 Descriptive Statistics
The measures used to describe the data set are measures of
central tendency and measures of variability or dispersion.
Measures of central tendency include the mean, median and
mode, while measures of variability include the standard
deviation, the minimum and maximum variables and skewness.
 Correlation Analysis
Pearson correlation value of CEO duality is - 0.332. And it is
significant at 0.01 levels. Therefore there is a significant negative
correlation between CEO duality and financial distress.
Board size correlation is -.014. And its sig value is 0.882.
Therefore there is an insignificant negative correlation between
board size and financial distress.
 Board activity disclosure has 0.427 Pearson correlations. Also its
sig value is 0.000. Therefore there is a statistically significant
positive correlation between board activity and financial
distress.
 Board independence has -0.43 Pearson correlations. And its sig
value is 0.644. Therefore there is an insignificant negative
correlation between board independence and financial
distress.
 Solvency ratio has -0.146 Pearson correlations. Also its sig value
is 0.113. Therefore there is an insignificant negative correlation
between solvency ratio and financial distress.
 Log total asset has 0.023 Pearson correlations. Also it sig value is
0.803. So it has insignificant positive insignificant correlation
between firm size and financial distress.
 Regression Analysis

Using the regression model of this study can be presented as

follows;
Negative EPS = 13.142 -15.089CEO -0.851BSIZE -9.733IND
+2.853-2.519SOLVN 1.053SIZE + Ɛ

• Negative EPS = Financial Distress

• CEODUL = CEO duality
• BSIZE = Board Size
• IND = Board Independence
• ACT = Board Activity
• SOLVN= Solvency Ratio
• SIZE=Firm Size
• CEO duality disclosure coefficient shows the negative value. So it
is not supported to the first hypothesis (H1: There is a positive
relationship between CEO Duality and financial distress).
• Board size disclosure confident is a negative value. Therefore
second hypothesis (H2: There is a negative relationship between
Board size and financial distress) is accepted.
• Board activity also shows the positive relationship with financial
distress. Therefore it not supported to the third hypothesis (H3:
There is a negative relationship between Board Activity and
financial distress).
• Board independence shows the negative coefficient. So that's
leads to accept the fourth hypothesis (H4: There is a negative
relationship between Board independence and financial distress).
conclusion
The study identify there is only significant impact on financial
distress is CEO duality and board activity. Board size and board
independence are not significantly impact on the financial
distress. Both control variables of solvency ratio and firm size
show insignificant impact on financial distress.

RECOMMONDATIONS
This study can be carried out with expand the time period and
also add some other important determinant factors.
Thank You!