ICARE 2018

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Factors Affecting to Formal Accounting System in SME’s in Sri Lanka
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Bandara, R.M.S.S.S.; Karunarathna, W.V.A.D.
Small and Medium enterprise can’t be ignored throughout the economic and social world because of the Small and Medium (SME) sector provides more contribution to Gross Domestic Product (GDP) and significant percentage has taken by SME sector in the Sri Lankan economy and also it is very much important for solving unemployment problem of the country. It is important to study how affect formal Accounting systems effect on the survival and growth of SMEs. Therefore, this study aims to identify what are the factors affect to the formal Accounting System in SME’s in Sri Lanka. So, Financial Accounting Practices, Skills of Financial Accountant, Business Life Cycle, External Pressure and Capacity Argument are considered by the study as independent variables of the study that affect to the adoption formal accounting system for the SME’s. The study used Primary data of 60 Small and Medium Enterprises located in Kurunegala District. A well-structured questionnaire was used to collect data from the respondents of the study. Descriptive statistics and Correlation analysis were applied using SPSS software. The Results of the study revealed that there is a positive relationship between formal Accounting System and SME’s Financial Accounting Practices, Skills of Financial Accountants and External Pressure
The Impact of Board Characteristics on Sustainability Reporting: Empirical Evidence from Sri Lankan Firms
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Dimuthumali, H.G.K.S.; Rajapakshe, R.M.D.A.P.
At the present scenario, Sustainability Reporting plays vital role in financial reporting as it is crucially impact on the growth and continuous development of a firm in certain and equity market. There are several factors influenced on sustainability reporting. Among them board characteristics impact more as disclosure decisions are one of the primary control functions of the board. The purpose of the research is to explore the role played by the board of directors in corporate sustainability reporting among the listed companies in Sri Lanka. Research problem is based on the board characteristics and it is impact on the detailed sustainability reporting. Data collected from the sample of 60 Sri Lankan listed companies over a period of four years (2014-2017), representing practically four business sectors which represent the highest number of companies under sector classification of CSE in 2017. Board size (BS), Board independency (BIND), Dual leadership (DL), Board with female directors (BFD), Board ethnicity (BE) and Impact of ownership structure (OS) were used as the board characteristics. Binary logistic regression is the method which used to analyze the research data. The results reveals that firms which follow a detailed sustainability reporting have larger boards, more female directors and higher portion of independent directors. This study also found that dual leadership, board ethnicity and board ownership have no influenced on detailed sustainability reporting. This study contributes to provide value addition into the existing literature on this subject by providing sufficient evidences to fill up the gap in the existing literature
Internal and External Determinants of Bank Profitability in Sri Lanka
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Wijethunga, K.D.P.I.M.; Wijekoon, W.M.H.N.
The bank provides a vital role as a financial intermediary for the development of countries’ economy. Bank performance has significant impact on investment, growth as well as economic development. The purposes of this study therefore, are to: investigate the relationship between internal and external factors and bank performance; and identify which factor is most important for the banking industry in Sri Lanka. This study employed following independent variables in order to examine the impact of internal and external factors on profitability of Sri Lankan banks: Bank Size (BS); Bank age (BA); Operating Cost (OC); Capital adequacy (CA); Liquidity Risk (LR); Total Deposit (TD); The real GDP growth (RGDP); and the yearly growth of householders’ disposable income (YGHDI). Sample of this study consists with twenty licensed commercial banks and specialized banks and data were gathered from multiple sources such as annual reports, bank web sites and central bank web site over the periods from 2009 to 2017. The data were analyzed using multiple panel regression model. Results of the study indicated that the Bank Age, Total Deposit, Yearly Growth of Household Disposable Income has a positive relationship with bank profitability. Liquidity ratio, Capital Adequacy ratio and Operating Cost negatively effect to the performance of banks in Sri Lanka. In addition, Bank Size and GDP which have reported a positive insignificant relationship with ROA. Results concluded that both internal and external factors contributed on the performance of Sri Lankan Banks.
The Impact of Corporate Characteristics and IFRS Adoption on Audit Report Lag: Evidence from Listed Manufacturing Companies in Sri Lanka
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Srinath, V.P.N.; Kawshalya, M.D.P.
An audit report lag (ARL) is defined as a period from a company’s fiscal year-end date to the audit report date. The shorter the ARL in releasing audited financial statements, the greater the usefulness and benefits that users can derive from these statements. The purpose of this research is to the identify impact of corporate characteristics on audit delay in Sri Lankan manufacturing companies, listed in Colombo Stock Exchange (CSE). Further, since IFRS adoption represents a significant milestone in the accounting discipline in Sri Lanka which can reasonably expect an impact on audit report lag also, the study extended to investigate the impact of IFRS adoption also on audit report lag. Accordingly the current study investigated the influence of corporate size, audit firm statues, CEO duality, ownership concentration, ownership dispersion, board size and IFRS adoption on audit report lag. The data for the study collected from annual audited financial statement of all the listed manufacturing companies of CSE. Data for the period of nine years from 2008/2009 financial year to 2016/2017 financial year has been collected. Based on the regression estimate obtain, the study concludes that the audit report delay influenced by corporate size, audit firm statues, CEO duality, ownership concentration, ownership dispersion, board size and IFRS adoption
The Impact of Macroeconomic Variables on Stock Market Performance of Sri Lanka
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Vishmini, K.W.O.; Madurapperuma, M.W.
Smooth functioning of a stock market is paramount important to a healthy economy. Investigations of relationship between macro-economic factors and performance of stock markets at many emerging economies including Sri Lanka are relatively limited. This study aims to identify the impact of macroeconomic variables on the stock market performance of Sri Lanka. The dependent variable is the All Share Price Index of Colombo stock market (ASPI) and the explanatory variables are the Gross Domestic Product (GDP), Inflation proxy by wholesale price index (WPI), Interest rate (IR), Balance of payment (BP) and Exchange rate (ER) over the period of 2010 to 2017 in a quarterly basis. All the data were collected from the Central Bank Annual Reports and from the Colombo Stock Exchange. Data were analyzed using VECM using E-Views. The results revealed that the macroeconomic variables and the stock market index (All share price index) in Sri Lanka significantly related. Analysis further showed that stock market index significantly positively related to GDP, ER and IR while it is negatively related to the inflation proxies by wholesale price index of Sri Lanka. The other variable which is the Balance of payment is insignificant in determining the stock market performance
The Impact of Internal Corporate Governance on Convergence of IFRS: Evidence from Sri Lanka
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Harshana, R.D.U.; Perera, H.A.P.L.
The convergence of International Accounting Standards (IAS) with International Financial Reporting Standards (IFRS) is an important debate among standards setters, policy makers, regulators, professional bodies and companies worldwide. The objective of this research is to examine the impact of internal corporate governance on convergence of International Financial Reporting Standards (IFRS) and to measure the impact of individual corporate governance factors to the convergence of IFRS. Changes of equity during the year were used as the dependent variable of the model and no of financial and non-financial variables were used as independent variables. Financial and non-financial data were collected from annual reports published by the listed manufacturing companies in Colombo Stock Exchange (CSE) during the period of 2009 to 2015. This six (6) year period was divided into two categories as before and after convergence of IFRS. All the manufacturing sector companies were selected as the sample of the research. Due to the unavailability of data, there were 29 companies used for the final analysis. Panel data regression was used to analyze data using E-views software. The results of the study revealed that, effective internal corporate governance mechanism helps companies more aligned with convergence of local accounting standards to IFRS and thereby provide high quality financial information to users of the information
Relationship between Income Source Diversification and Financial Performance of Commercial Banks in Sri Lanka
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Dilrukshi, K.K.S.; Thilakarathne, P.M.C.
Profitability of commercial banks highly depends on the net interest income generating activities. Due to the profitability and stiff competition, banks have changed their income sources, by diversifying into non-interest income generating activities. The objective of the study is to investigate the impact of income source diversification on financial performance of commercial banks in Sri Lanka. The study used secondary data of 15 commercial banks covering the period of 2008- 2017. Diversification Index used as diversification indicator while Return on Assets (ROA) and Return on Equity (ROE) used as performance indicators. There are some control variables like asset size, growth rate, equity ratio and loan ratio added to the model to ensure that there is no any affect for the relationship between bank income diversification and bank performance from those variables. Descriptive statistics, correlation and regression analysis have used as analytical tools of the study. Results revealed that there is a positive relationship between income diversification and bank performance despite the fact that degree of diversification being not in the peak within Sri Lankan context. Additionally asset size, loan ratio and asset growth variables are not significant variables to the both ROA and ROE models and equity ratio variable shows a significant negative relationship with bank performance in both models
The Effect of Bank Specific Determinants on Profitability of the Commercial Banks in Sri Lanka
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Niroshini, V.D.; Rathwatta, G.M.H.P.K.
Sri Lanka, commercial banks play the important role of the operation on the economy and it provides financial infrastructure for economic development. Therefore, studying the determinants of bank profitability is vital to the economy. The study conducted to find out the effect of bank specific determinants on profitability in Commercial Banks in Sri Lanka. To test this objective, the bank Profitability was used as main dependent variable; it included Return on Equity. Moreover, Bank Specific determinants was utilized as Independent variable, it consists with Operation efficiency, Capital adequacy, Credit risk, Liquidity risk, Bank size, Bank Age and Deposit ratio. The study used the secondary data and that obtained from randomly selected ten (10) domestic commercial Banks’ annual reports for the period 2008- 2017. The descriptive analysis, Correlation analysis and Multiple Regression Analysis are used as data analysis methods. The findings revealed that Credit Risk and Liquidity Risk have significant impact on bank profitability whereas bank profitability measures in terms of Return on Equity. Furthermore, the study recommended that the banks should spend much time to maintain Credit Risk and Liquidity Risk as smoothly
The Impact of Internal Control Systems on Profitability: A Study Based on Employees’ Perception of Licensed Commercial Banks in Sri Lanka
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Jayaweera, W.T.N.; Karunarathna, W.V.A.D.
Internal control system plays an important role in preventing and detecting fraud and also protecting the tangible and intangible assets of an organization. Therefore, it is important to study how the internal control system of an organization affects the organization’s performance. Indeed, it is critical for banks and financial institutions to recognize the risk they encountered. So the purpose of this study is to investigate the impact of internal control system on profitability of an organization and it is mainly based on employees’ perception on internal control system of Licensed Commercial Banks in Sri Lanka. Internal control system consists of control environment, risk assessment, control activities, communication and monitoring. The study selected a sample of permanent employees of 25 licensed commercial banks in Sri Lanka. The study used on primary data and it was collected using semi-structured questionnaires with open- ended and close-ended questions. Data was analyzed by using Statistical Packages for Social Science (SPSS). Descriptive statistical measures and the regression analysis were applied to analyze the data of the study. The results of the study showed that the internal controls have statistically significant impact on profitability. Furthermore, findings of the study revealed that the elements of internal control systems comprising control environment, control activities and monitoring have significant and positive impact on profitability in licensed commercial banks in Sri Lanka
The Impact of IFRS Adoption on Financial Statements and Value Relevance: Evidence from Sri Lanka
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Dissanayaka, H.M.K.G.L.B.; Karunathna, W.V.A.D.
The aim of this study is to explore the effect of International Financial Reporting Standards (IFRS) adoption on commonly employed financial ratios and investigate the value relevance of IFRS adoption by comparing the association between accounting measures and market values under GAAP and under IFRS of listed manufacturing companies in Colombo Stock Exchange. This study employs 20 listed manufacturing companies with both pre-IFRS (2009- 2011) and post-IFRS (2013-2015) information. Data were analyzed by using panel data regression model and correlation analysis. And also T test and Wilcoxon signed rank test are used to explore the effect of IFRS adoption on financial ratios. Results of the study showed that IFRS adoption does not significantly change the central values that depict the financial position and performance of Sri Lankan companies in financial statements. Therefore value relevance of accounting information has not significantly improved in the post-IFRS period than the pre-IFRS period. However several financial statement measures and ratio are affected significantly in transition to IFRS. Further studies are encouraged to conduct on investigating the impact of IFRS adoption on financial statement and value relevance by expanding the sample size with incorporating more accounting quality measurement indicators, measurement and ratios
Credit Risk Management and Financial Performance in Listed Financial Institutions in Sri Lanka
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Kumudumali, H.H.E.; Wijesinghe, K.D.G.N.
Financial Institutions are exposed to different types of risks, which effect the performance and activity of these financial institutions. Credit risk is one of the most significant risks that financial institutions face, considering that granting credit is one of the main sources of income in financial institutions. The main purpose of this study is to investigate the impact of credit risk management on financial performance in finance institutions. The study considered ROA (Return on Asset) as profitability indicator while Non- Performing Loan Ratio (NPLR), Total Loans to the Asset ratio, Capital Adequacy Ratio (CAR) are considered as credit risk management indicators. The study used secondary data of 30 financial institutions covering the period of 2012 to 2017. Data were analyzed using panel data analysis through E-Views packages. The result reveals that overall credit risk has significant impact on profitability of listed financial institutions
Factors Leading to Business Process Outsourcing Decisions in Sri Lankan Hotel Industry
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Geethika, B.K.S.; Gunasekara, U.L.T.P.
This research tried to find the factors affecting to BPO (Business Process Outsourcing) decision in Sri Lankan Hotel Industry. Further the study expected to identify the activities which were highly possible for outsourcing decisions. By employing the resourced based view (RBV) as a theoretical basis, this study identified two important factors that lead to outsourcing decision in companies in hotel sector. It does so by describing some basic assumptions of the resource-based view. Two factors are proposed as determinant for outsourcing decision. They are company core competence and capability. Literature claimed that both of these two factors play an important part in the decision-making process in selecting an external provider for organizational activities. Sample consisted of six hotels which are ranked as 3-5 stars. Semi-structured interviews were used to gather primary data and the secondary data was obtained from relevant published reports written on evaluating the factors and areas of activities for outsourcing in the hotel industry. The executive categories of staff members who are responsible in making outsourcing decisions were interviewed. Finally, it was concluded that the factors: core competence and capability have a significant impact on the BPO decision and the hotels have been concentrating on their non-core functions such as hotel housekeeping and food and beverage, laundry and IT as possible outsourcing areas of activities. The study suggested managerial implications and future research directions
Effect of Credit Management on Profitability of Listed Companies in Sri Lanka
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Samarkoon, R.M.; Perera, H.A.P.L.
Credit management is a very important activity of any organization and it will be the reason to increase firm’s revenue and ultimately firm’s profitability. The purpose of this study is to identify the impact of credit management on profitability of listed companies in Sri Lanka. The sample of the current study was only the manufacturing sector companies listed in Colombo Stock Exchange in Sri Lanka for the period of 2011 to 2017. Due to the unavailability of data, only 30 listed manufacturing companies were selected for the data analysis. The researcher used Debtor’s turnover ratio, Account receivable ratio and Liquidity management as independent variables to measure the credit management and Return on Assets (ROA) is used as dependent variable to measure the company’s profitability. Panel data regression was used to analyze data using E-views software. According to the results, Debtor’s turnover ratio, Account receivable ratio and Liquidity management are affected for the profitability of listed manufacturing companies in Sri Lanka. This study establishes that there is a positive relationship between credit management policies and company’s Return on Assets in listed companies of Sri Lanka
Stock Market Development and Economic Growth in Sri Lanka
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Perera, K.A.H.; Madurapperuma, M.W.
Stock market plays an important role on economic development and it promotes the economic growth and prospects of the economy. The main objective of this research was to identify the impact of Stock Market Development on the Economic Growth in Sri Lanka. Using data for the period from 2000 to 2017, this study employed ECM for long run relationship and for the short run dynamics. Market capitalization, Stock total traded value and turnover ratio and inflation were taken as independent variables; stock market development was taken as the dependent variable. The annual time series data were employed for the Sri Lanka economy for the period of 2000 – 2017. These data were collected from website of Colombo stock Exchange annual reports of Central Bank of Sri Lanka, Department of Census and Statistics of Sri Lanka web site. Multiple regression model and correlation analysis were used to analyze the data using E-views software. The findings of this study suggest a positive relationship between efficient stock market and economic growth both in short run and long run. The results are consistent with the theoretical predictions
The Effect of Internal Control System on Financial Performance of Licensed Commercial Banks in Sri Lanka
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Bogahadeniya, B.D.S.A.; Munasinghe, M.A.T.K.
Internal control systems play an important role in every organization as it help to accomplish their financial performance objectives. The main objective of this study is to determine the effect of internal control system on financial performance of licensed commercial banks in Sri Lanka. Internal controls are looked at from the perspective of Control Environment, Risk Assessment, control Activities, Information and communication and monitoring whereas financial performance focused on Return on Assets. The target population was 25 licensed commercial banks, supervised by the central bank under the banking Act No. 30 of 1988. The random sampling method was used to select the sample and sample size of the study was 16 licensed commercial banks in Sri Lanka that represent 62% of total population. The study relied on both primary and secondary data. Primary data obtained through the standard questionnaire in five likert scale format while the secondary data is gathered from financial statements. Multiple regression models were used to test whether internal controls have any influence on financial performance. The study adopted descriptive research design using both quantitative and qualitative approach. The data is analyzed by the aid of Statistical Package for Social Science (SPSS). Based on the research findings it can be concluded that internal control system is a positive significant predictor of financial performance. In addition, control environment, Risk Assessment, internal control activities, information and communication have positive relationship with financial performance licensed commercial banks
Quality of Loan Portfolio Management and Its Impact to the Financial Performance of Commercial Banks in Sri Lanka
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Hewaarachchi, H.A.H.M.; Perera, H.A.P.L.
In today’s world, banking sector has become extremely competitive powerful industry, providing many services to the society. Careful management of banks’ loan portfolio is very much essential for their stability as significant amount of banks’ revenue is collected from loans and advances given. This study aims to find out the relationship between quality of loan portfolio management and the financial performance of Commercial Banks in Sri Lanka and the impact of it. Return on Assets (ROA) was used as the dependent variable to measure the financial performance of Sri Lanka, while Loan Portfolio Profitability (LPP) and Loan Loss Provision to Gross Loan Advances (LLP/GLA) were used as independent variables to measure the quality of loan portfolio management. Cost Income Ratio (CIR), Liquid Funds to Total Assets (LF/TA) and Total Assets (TA) were used as control variables. Due to the unavailability of data, only 15 Commercial Banks in Sri Lanka were considered for the period of 2008 to 2017. The panel data regression was used to test the hypothesis formulated, and data were analysed using the E-Views software. The results reveal that, the overall quality of loan portfolio management has a significant impact on the performance of Commercial Banks in Sri Lanka
The Impact of Dividend Policy on Shareholders’ Wealth and Business Performance of Listed Manufacturing Companies in Sri Lanka
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Dilshani, L.D.C.; Abeywardhana, D.K.Y.
The Dividend policy play a major role in current business as most important financial policy not only from the viewpoint of the company, but also from that of the shareholders, the consumers, employees, regulatory bodies and the government. The study aims to identify how the dividend policy influences the shareholders ‘wealth and the business performance of listed manufacturing companies in Sri Lanka. Dividend per share (DPS) and Dividend yield (DY) use as Dividend policy indicators while Return on Equity (ROE) use as business performance indicator and earning per share (EPS) and Market share price (MSP) use as shareholders’ wealth indicator. The study use secondary data of 30 manufacturing companies covering the period of 2012 to 2017. Data analyze using regression analysis. The result reveals that dividend policy has significant positive impact on shareholders’ wealth and the business performance of listed manufacturing companies in Sri Lanka. The previous empirical studies provide evidences that dividend policy has significant positive impact on shareholders’ wealth and the business performance
The Impact of IFRS Adoption on Financial Ratios
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Rajapaksha, R.A.S.; Kawshalya, M.D.P.
Since the world economy is getting globalized, past practices of accounting may not be able to satisfy the information requirements of global stakeholders. Therefore the concept of harmonizing the accounting practices has been put forward and realized by the implementation of International Financial Reporting Standards (IFRS) issued by International Accounting Standard Board (IASB).The main purpose of this research is to examine the impact of IFRS adoption on financial ratios in Sri Lankan listed manufacturing sector companies. The data was collected for the period of eight years from 2008/2009 to 2015/2016 using annual reports published on listed manufacturing sector companies. The total sample period is divided to two parts as pre IFRS and post IFRS for comparison. The ratios which are selected for the analysis are current ratio, earning per share, debt to equity ratio & return on equity ratio. The findings of the study suggests that there is no significant difference between the ratios calculated as per previous accounting standards and after adopting IFRS except return on equity ratio. Through the impact was not found to be significant for debt equity ratio and current ratio. These findings would be useful since data used for the current study is more recent than most IAS or IFRS studies around the world and are stratified to allow for comparison between voluntary/early adopters and mandatory/late adopters
Information Technology and its Implication on Internal Auditing in Sri Lankan Companies
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Udayangani, M.A.S.; Perera, H.A.P.L.
Information Technology (IT) is a very much important function in designing, implementing and directing many controls over the organizations’ business processes. Currently both internal & external auditing processes are rapidly changing and one of the main reasons is the changes in IT. This study aims to find the impact of IT and its implications on Internal Auditing. Further, the study examines the influence from Objectives and the Organizational Characteristics on the IT Evaluations performed in Sri Lankan companies. IT Evaluations, Objectives and Organization Characteristics were used as independent variables and IT Evaluation categories were used as the dependent variable. This study carried out using a standard questionnaire which consists of mainly four parts. 100 questionnaires were distributed to companies representing manufacturing, service, banks and hotel sector using the cluster sampling method. Data received from 80 respondents representing all sectors. Data were analyzed using the Statistical Package for Social Science (SPSS). According to the results of the study, internal auditors mainly focus on traditional risk such as IT data integrity, asset safeguarding, privacy and security and less attention has given to system development and acquisition
The Impact of Intellectual Capital on Firm’s Market Value and Financial Performance
(4th International Conference for Accounting Researchers and Educators, Department of Accountancy, Faculty of Commerce and Management Studies, University of Kelaniya, Sri Lanka, 2018) Ganegoda, G.P.S.K.; Karunarathna, W.V.A.D.
Intellectual capital has a huge impact on the firms’ value creation process and it will also generate competitive advantage to the organization with the development of knowledge based economy. The study aims to identify the impact of intellectual capital on firm’s market value and financial performance of the bank, finance and insurance sector and manufacturing sector in Sri Lanka. Return on asset and market to book value are separately used as dependent variables. The Value Added Intellectual Coefficient (VAIC) method introduced by Pulic (2000) is used to measure the intellectual capital of the firm. The study used secondary data of 15 bank, finance and insurance sector companies and 15 manufacturing sector companies covering the period of 2012 to 2017. Data were analyzed using linear regression model and used E-Views software to perform statistical tests. The results revealed that intellectual capital significantly impact to the firm’s financial performance in bank, finance and insurance sector. However, according to the results there was no significant impact of intellectual capital on firm’s financial performance in manufacturing sector. Furthermore, intellectual capital has no significant impact on firm’s market value in both sectors