Audit Committee Dynamics, Chief Executive Officer Attributes, and Financial Performance: Evidence from Listed Diversified Financial Companies in Sri Lanka
Abstract
Corporate governance plays a pivotal role in ensuring financial stability and enhancing firm performance, particularly within the financial services sector, where governance lapses can trigger systemic risk and substantial investor losses. Within this context, audit committee dynamics and CEO attributes emerge as critical governance mechanisms that shape monitoring effectiveness, financial reporting quality, and strategic decision-making. The purpose of this study is to assess the impact of audit committee dynamics and CEO attributes on the financial performance of listed diversified financial companies in Sri Lanka. The analysis is based on a sample of 28 diversified financial companies listed on the Colombo Stock Exchange over the period 2016–2025, using secondary data derived from annual reports. Audit committee dynamics and CEO attributes were analyzed using regression to assess their impact on financial performance (ROA), controlling for firm size. The findings reveal that audit committee size exerts a negative effect on financial performance, while member expertise and meeting attendance demonstrate a positive and significant impact. Other variables, including audit committee independence, meeting frequency, chair tenure, and CEO attributes are found to be statistically insignificant. These results indicate that governance effectiveness depends more on functional quality and engagement of audit committees than structural or positional characteristics. Thus, the study suggests that boards and regulators should prioritize competency-based audit committee appointments and foster active participation, while investors may incorporate these factors into their evaluation of firm performance. Overall, the findings indicate that only selected governance mechanisms influence financial performance, emphasizing the importance of quality and engagement over structural or executive attributes.