Impact of Corporate Governance Practices on Firm Capital Structure and Profitability: A Study of Selected Hotels and Restaurant Companies in Sri Lanka.

Abstract

Corporate governance issues have been a growing area of management research especially among large and listed firms. Good corporate governance practices are regarded as important in reducing risk for investors, attracting investment capital and improving the performance of companies. Companies need financial resources and better earnings to promote their objectives. Therefore, factorsmay affect the capital structure and profitability of companies should be considered carefully. The purpose of the present study is to investigate whether there is any relationship among some specific characters of corporate governance, capital structure and profitability of listedHotels &Restaurant companies in Colombo Stock Exchange (CSE). To do so, 18 companies were selected from those which were listed inCSE during the 2007-2012. The ‘Board Composition(BC)’, ‘Board Size (BS)’ and ‘CEOduality (CEOD)’ were considered as independent variables, whereas,’ Debt Ratio(DR)’,‘Debt-to-Equity Ratio(DER)’,‘Returns on Equity(ROE)’,and ‘Return on Assets(ROA)’ as dependent variable. The results indicate a positive relationship between ‘BS; BC; CEOD; ROE; ROA and DERwhereas negative relationship between BS; BID and DR.in addition CEOD have a positive relationship with DR.In addition, none of the variables have a significant relationship with capital structure and profitability.

Key words: Corporate Governance; Capital Structure and Profitability.