Abstract:
Purpose: The purpose of this study is to investigate the relationship between board size
(BS) and audit committee (AC) characteristics, namely AC size, AC meeting frequency,
and AC expertise which can be treated as integral components of CG on the FP using the
evidence of Licensed Commercial Banks (LCB) in Sri Lanka.
Methodology: The study was carried out using secondary data obtained through
published annual reports of 24 LCB, including 96 observations in the Colombo Stock
Exchange (CSE) from 2016 to 2019.Financial performance was measured by Return on
Assets (ROA) and Return on Equity (ROE) using two multiple regression models upon
satisfying the pre-diagnosis tests.
Findings: The findings demonstrated BS has a significant negative relationship with FP
measured by both ROA and ROE. Further, AC expertise depicted a significant positive
relationship with FP measured by ROE while insignificantly related with ROA. However,
the other remaining characteristics did not significantly influence on FP.
Research limitations: This study has been conducted on financial firms in Sri Lanka
which implies that the generated findings may not be transferrable to non- financial
firms. Hence, it would be better to consider different countries, small, medium and
large-scale enterprises and private and public undertakings to make findings
generalizable to all types of firms. Also, the current study only stresses on key CG
elements such as board size along with key AC characteristics. Future studies should
consider more independent variables including board diversity, tenure of AC,
independence of the AC which may significantly influence on FP.
Implications: Overall, this analysis highlights the importance of CG mechanisms which
may be useful for policymakers for future designs. Further, the findings of the study
would be helpful for management to make appropriate decisions regarding optimizing
the board size and AC characteristics in order to safeguard the interests and demands of
the different stakeholders of the firms.
