Abstract:
Corporate governance deals with determining ways to take effective strategic decisions and develop
added value to the stakeholders. This study aims to examine the influence of corporate governance
practices on agency cost of listed firms in Sri Lanka. Secondary data covering seven year period from 2013
to 2019 was obtained from manufacturing firms listed in Colombo Stock Exchange (CSE). The study applies
the governance practices such as board size, board independence, board meetings, and director
ownership as a tool in monitoring agency costs based on asset utilization ratio as proxy for agency costs.
The techniques of Pearson’s Correlation and Multiple regressions were employed in estimating the
association between the corporate governance practices and agency cost. The empirical findings reveal
that board independent directors statistically significant influence the agency cost of listed manufacturing
firms in Sri Lanka whereas board size, board meetings and managerial ownership are not found to have a
significant impact on agency cost. Therefore, there is strong evidence that board independent directors
have a major effect as a device in mitigating agency costs. The results will support stakeholders, including
corporate management, regulators, and investors to improve corporate governance mechanisms and
make the effective decisions.
