An Empirical Study on Corporate Ownership Structure and Firm Performance: Evidence from Listed Companies in Sri Lanka

Abstract

Ownership structure, whether it is concentrated or dispersed, is one of the main determinants of organizational performance. Theories of corporate governance insist on dispersed ownership and segregation of ownership and management. In most of the emerging countries a concentrated form of ownership is evident in listed companies. Therefore the objectives of this study are twofold; to investigate whether ownership structure has an impact on firm performance and to examine whether concentrated ownership has an impact on firm performance, in companies listed in Sri Lanka. Researchers have considered a sample of seventy six (76) non-financial listed companies in CSE during the period of 2008 to 2014. A time fixed effect model is applied into the panel regression analysis and a Generalized Least Squares (GLS) regression model is chosen. Findings suggest that a significant relationship exists between ownership structure and firm performance. Empirical evidence further elucidates that institutional ownership has a significant positive relationship with firm performance, which can be justified based on the ‘active monitoring argument’. Significant negative relationship between individual ownership and firm performance can be argued based on ‘manager discouragement argument’. Concentrated ownership too has a significant positive relationship with firm performance, supporting the wellknown agency theory propositions.