Abstract:
1. Introduction
This study examines the impact of corporate governance (CG) on stock
returns in non-financial firms listed on the Colombo Stock Exchange (CSE).
Stock return reflects an asset's price change over time, expressed as a
percentage or price change. Research on the relationship between
corporate governance and stock returns shows mixed results, both locally
and internationally. This inconsistency prompts an exploration of ‘What is
the impact of corporate governance on stock returns in non-financial firms
listed on the Colombo Stock Exchange.
2. Research Methodology
Board size, board independence, CEO duality, financial acumen,
nomination committee, remuneration committee, and audit committee are
used as the independent variables. Firm size and leverage are used as
control variables. The dependent variable stock return was proxy by
dividend and capital gain. The sampling procedure involved careful
selection from a population of 196 publicly traded non-financial
companies, with those that showed anomalies in their yearly reporting
procedures being systematically left out. The required data was gathered
from the annual reports for the years 2018 through 2022. The analysis
methods used in this study were descriptive, correlation, and regression on
panel data. Fixed effects, random effects, and the Hausman test were also
executed through the Panel Regression Analysis.
3. Findings and Discussion
The results indicated that the nominating committee had a statistically
significant effect on stock returns, indicating that the committee's efficacy
had an impact on stock returns. Remarkably, none of the other variables
indicated a significant impact on stock returns.
4. Conclusion and Implications
The study concludes that compliance with CG best practices in Sri Lanka
does not significantly impact stock returns. The minimal effect of
remuneration and audit committees, combined with the lack of variation in
governance compliance and the unique ownership structures, suggests that
traditional CG practices may have limited influence on stock performance.
