The impact of board composition on shareholder wealth creation: evidence from public companies in Sri Lanka


  • M. S. A. Riyad Rooly South Eastern University of Sri Lanka, Oluvil, Sri Lanka



corporate governance, shareholder wealth, board composition, Colombo Stock Exchange, agency theory, resource dependence theory


Purpose — This research aims to examine the impact of board composition on shareholder wealth in line with the agency and resource dependency theory approach due to the poor corporate governance practices leading to investors' lack of confidence.
Method — The study samples included companies listed on the Colombo Stock Exchange in Sri Lanka. The banks and financial institutions were excluded from this study. The study period consists of seven years, and a final sample of 175 companies was selected for the analysis. E-View 9 statistical software was used to test the association between Board composition-related variables and shareholder wealth.
Result — The findings revealed that board size, separate leadership structure, and proportion of non-executive directors on the Board positively influence shareholder wealth. At the same time, a separate leadership structure also tends to enhance the shareholder wealth of companies. It is noted that a large board and a higher proportion of non-executive directors on the Board would benefit shareholders, which supports the theoretical prediction of agency and resource dependency theories and the code of best practices on corporate governance in Sri Lanka. The result related to women's representation on the Board does not significantly influence shareholder wealth since the gender balance was not prioritized in Sri Lankan listed companies.
Recommendation — The findings provide valuable information to professionals and policymakers to develop a framework for corporate governance systems. It is also advisable to consider the gender balance on board affairs. Corporate governance mechanisms are considered important factors in protecting shareholder interests at large.
Contribution — There were few studies in Sri Lanka that specifically examined corporate governance best practices and their impact on firm performance, but no single study directly addresses the shareholder wealth of listed companies in Sri Lanka. This study is intended to fill in this gap.


Download data is not yet available.


Adams, R. B., and Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of financial economics, 94(2), 291-309. [link]

Azeez, A. A. (2015). Corporate governance and firm performance: evidence from Sri Lanka. Journal of Finance, 3(1), 180-189. [link]

Azhagaiah, R., and Priya, S. N. (2008). The impact of dividend policy on shareholders' wealth. International Research Journal of Finance and Economics, 20(3), 180-187. [link]

Boatright, J. R. (2010). Finance ethics: Critical issues in theory and practice. John Wiley and Sons. [link]

Carter, D. A., D'Souza, F., Simkins, B. J., and Simpson, W. G. (2010). The gender and ethnic diversity of U.S. boards and board committees and firm financial performance. Corporate Governance: An International Review, 18(5), 396-414. [link]

Carter, D. A., Simkins, B. J., and Simpson, W. G. (2003). Corporate governance, board diversity, and firm value. Financial Review, 38(1), 33-53. [link]

Chilosi, A., and Damiani, M. (2007). Stakeholders Vs. Shareholders in corporate governance. Munich Personal RePEc Archive. [link]

Code, C. (1992). The financial aspects of corporate governance. London: The Committee on the Financial Aspects of Corporate Governance and Gee and Co. Ltd. [link]

Dharmadasa, P., Gamage, P., and Herath, S.K. (2014). Corporate governance, board characteristics and firm performance: Evidence from Sri Lanka. Journal of South Asian Development, 21(1), 7-31. [link]

Dissabandara, D. B. P. H. (2012). How is the current view of Japanese corporate governance? A snapshot of the present corporate governance in Japan. Journal of the Graduate School of Business Administration, Chukyo University, 4(6), 89-127. [link]

Donaldson, L., and Davis, J. H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management, 16(1), 49-64. [link]

Fama, E. F., and Jensen, M. C. (1983). Separation of ownership and control. The journal of law and Economics, 26(2), 301-325. [link]

Florackis, C. (2008). Agency costs and corporate governance mechanisms: Evidence for U.K. firms. International Journal of Managerial Finance, 4(1), 37-59. [link]

Garanina, T., and Kaikova, E. (2016). Corporate governance mechanisms and agency costs: cross-country analysis. Corporate Governance, 16(2), 347-360. [link]

Gul, S., Sajid, M., Razzaq, N., and Afzal, F. (2012). Agency cost, corporate governance and ownership structure: the case of Pakistan. International Journal of Business and Social Science, 3(9), 268-277. [link]

Gunathilake, W., Zoysa, A.D., and Chandrakumara, P.M.K.A. (2011). Corporate governance in Sri Lanka: the status quo. Global Research in Business and Economics, 97-117. [link]

Guy, M. L., Niethammer, C., and Maline, A. (2011). Women on boards: a conversation with directors. Global corporate governance forum focus 9. The International Finance Corporation: World Bank. [link]

Hausman, J. A. (1978). Specification tests in econometrics. Econometrica: Journal of the econometric society, 1251-1271. [link]

Hillman, A. J., and Dalziel, T. (2003). Boards of directors and firm performance: Integrating agency and resource dependence perspectives. Academy of Management Review, 28(3), 383-396. [link]

Hillman, A. J., Cannella Jr, A. A., and Harris, I. C. (2002). Women and racial minorities in the boardroom: How do directors differ? Journal of Management, 28(6), 747-763. [link]

Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. The Journal of Finance, 48(3), 831-880. [link]

Jensen, M.C., and Meckling, W.H. (1976). Theory of firm: managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. [link]

Kalainathan, K., and Vijayarani, K. (2014). Corporate governance practices, issues and challenges in Sri Lanka. In Proceedings of the 2nd International Conference on Global Business, Economics, Finance and Social Sciences. [link]

Kanter, R. M. (2008). Men and women of the corporation: New edition. Basic books. [link]

Kiel, G. C., and Nicholson, G. J. (2003). Board composition and corporate performance: How the Australian experience informs contrasting theories of corporate governance. Corporate governance: an international review, 11(3), 189-205. [link]

Kyereboah?Coleman, A. (2007). Corporate governance and shareholder value maximization: An African perspective. African Development Review, 19(2), 350-367. [link]

Levin, A., Lin, C. F., and Chu, C. S. J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1-24. [link]

McKnight, P. J., and Weir, C. (2009). Agency costs, corporate governance mechanisms and ownership structure in large U.K. publicly quoted companies: A panel data analysis. The quarterly review of economics and finance, 49(2), 139-158. [link]

Means, G. (2017). The modern corporation and private property. Routledge. [link]

Mustapha, M., and Ahmad, A.C. (2011). Agency theory and managerial ownership: evidence from Malaysia. Managerial Auditing Journal. 26(5), 419-436. [link]

Prempeh, K. B., and Odartei-Mills, E. (2015). Corporate governance structure and shareholder wealth maximization. Perspectives of Innovations, Economics and Business, 15(1), 1-31. [link]

Reddy, K., and Locke, S. (2014). The relationship between ownership structures, capital structure and corporate governance practices. International Journal of Managerial Finance. 10(4), 511-536. [link]

Roudaki, J., and Bhuiyan, M.B.U. (2015). Interlocking directorship in New Zealand. Australian Accounting, Business and Finance Journal, 9(3), 45-58. [link]

Senaratne, S., and Gunaratne, P.S.M. (2008). Corporate governance development in Sri Lanka: Prospects and problem. [link]

Singh, M., and Davidson III, W. N. (2003). Agency costs, ownership structure and corporate governance mechanisms. Journal of banking and finance, 27(5), 793-816. [link]

Smallman, C. (2004). Exploring theoretical paradigms in corporate governance. International Journal of Business Governance and Ethics, 1(1), 78-94. [link]

Tchouassi, G., and Nosseyamba, B.O. (2011). Corporate governance and maximization of shareholder value: Theoretical analysis from Francophone countries in Africa. Journal of Public Administration and Policy Research, 3(6), 198-206. [link]

Tse, T. (2011). Shareholder and stakeholder theory: After the financial crisis. Qualitative Research in Financial Markets, 3(1), 51-63. [link]

Tudawe, S. (2010). No Women on Top: Is That News? Examining the 2010 Corporate Gender Gap Report. Daily Mirror. Colombo. [link]

Weerasinghe, W. A. N. C. M., and Ajward, R. (2017). Issues of corporate governance practices in Sri Lanka: perceptions of professionals. C.A. Journal of Applied Research, 1(1), 1-19. [link]






Regular Articles

Most read articles by the same author(s)