Journal of Modern Accounting and Auditing, ISSN 1548-6583 April 2012, Vol. 8, No. 4, 569-577 An Overview of the New Listing Rules and Corporate Governance Best Practice in Sri Lanka Chitra Sriyani De Silva Loku Waduge Victoria University, Melbourne, Australia Corporate governance represents institutional structures and incentive mechanisms that are implemented in order to mitigate the principal-agent problem and to thus promote the long-term competitiveness of the firm. The purpose of this paper is to examine the nature of corporate governance best practice and the new listing rules in Sri Lanka. The paper discusses the evolution of the corporate governance best practice giving special reference to the new listing rules in Sri Lanka, Sri Lankan stock market overview and the importance of best practice governance for the developing economy of Sri Lanka. Corporate governance practices in Sri Lanka has made a progress towards best practice, but, this paper argues, that substantial reforms need to be implemented to effectively promote and sustain the accountability and transparency. Keywords: corporate governance, best practice, listing rules, Sri Lanka Introduction The concept and application of corporate governance focuses on three inter-related issues: The structure of governing bodies, ownership composition and capital, and incentive mechanisms (Furubotn & Richter, 1991). The concept of “corporate governance” is complex and centers on conceptions of accountability and responsibility within a firm (Williamson, 1979, 2005). According to Williamson (2005), corporate governance centers on formulating ideal institutional structures that promote effective agent monitoring and incentive structures, which appropriately balance competing interests both internal and external to the corporate governance structure. The term “governance” denotes institutional structures that are formal (i.e., regulations and laws) or informal (e.g., norms, values, and assumptions) and which create constraints on the behavior of a party (Gayle, Bhoendradatt, & Whitt, 2003). According to Cadbury (1992), corporate governance is the mechanism used to discipline organizations. Morin and Jarrell (2001) argued that corporate governance mechanism is a framework that controls and safeguards the interest of the relevant players in the market which include board of directors, managers, employees, shareholders, customers, and suppliers. The aim of this paper is to discuss the influence of new listing rules on the corporate governance best practice in Sri Lanka. First part of this paper discusses the evolution and the content of best practice corporate governance. Second part presents the institutional background of Sri Lankan corporate sector, characteristics of Colombo Stock Exchange [CSE]. Third part of the paper focuses on the corporate governance best practice and new listing rules in Sri Lanka. Chitra Sriyani De Silva Loku Waduge, Ph.D., lecturer, School of Accounting and Finance, Victoria University. DAVID PUBLISHING D