The Impact of Transparency and Disclosure and Financial Distress on the Financial Performance: Evidence from Licensed Commercial Banks in Sri Lanka

Abstract

Introduction: Transparency and disclosure and financial distress are the critical factors affecting the financial performance of bank institutions. This research presents the relationship between these factors and the financial performance of commercial banks operating within the Sri Lankan market. The primary aim of this research is identifying the impact of transparency and disclosure and financial distress on the financial performance in licensed commercial banks in Sri Lanka.

Methodology: The sample of the research consists with eighteen licensed commercial banks in Sri Lanka for a period of 2014 to 2023. Transparency and disclosure and financial distress were considered as the independent variables of the regression models. The firm performance of the licensed commercial banks was considered as the dependent variable which was measured based on return on assets and return on equity. Descriptive analysis, correlation analysis and panel data regression were engaged to analyze the data in this study.

Findings: The findings revealed that transparency and disclosure has a negative and insignificant impact on firm performance measured by return on asset and financial distress has a positive and insignificant impact on return on asset. Also, the analysis revealed that transparency and disclosure has negative and insignificant impact on return on equity and financial distress has a negative and significant impact on return on equity.

Conclusion: The study concluded that in Sri Lankan context, transparency and disclosure have a negative impact on return on asset, and financial distress has a negative impact on return on asset. However, these variables have no significant impact on ROA. And the transparency and disclosure and financial distress have a negative impact on return on equity. Financial distress is significant, and transparency and disclosure have an insignificant impact on ROE.