Corporate Governance and Corporate Failure

The purpose of this research is to examine the influence of corporate governance characteristics on the corporate failure of listed companies in Sri Lanka. This study utilized publicly available data from annual reports of a sample of 70 failed firms and a sample of matched 70 non failed firms listed on Colombo stock market for a period covering the 2002 to 2008 financial years with logistic regression analysis. Corporate governance characteristics comprises with board size, CEO duality, outside directors, outsiders’ ownership, audit opinion, presence of an audit committee and remuneration of board members. Outside director ratio, presence of an audit committee and remuneration of board members turn out to be negatively associated with the probability of corporate failure, While CEO duality is positively related with the likelihood of corporate failure. Board size, auditor's opinion and outside ownership do not appear to be significant determinants. The paper offers evidence on the extent to which corporate failure associated with corporate governance. It would be educational to investors, financial analysts, accounting professionals, management and be helpful for regulatory authorities in making decisions, evaluations and policies.