Performance implication of ownership structure and ownership concentration: evidence from Sri Lankan firms

Purpose - This paper seeks to examine the impact of ownership concentration and ownership structure on firms’ performance of a sample of public listed companies in Sri Lanka in the premise of an agency theory framework. Design/methodology/approach - The paper first investigates the nature of ownership structure and concentration and then examines whether there is strong evidence to support the observation that the variations of ownership structure across firms result in systematic variations in firm performance. This hypothesis is tested by assessing the impact of ownership structure and concentration on firm performance measured in terms of accounting profitability and market performance using data for 45 Sri Lankan listed companies. Findings – The main finding indicates that there is a significant relationship between ownership concentration (SH10) and the performance of Sri Lankan companies measured in terms of an accounting performance measure of Return on Assets (ROA). However, no significant relationship was found between the Herfindahl index (HERF), which is a measure of ownership concentration, and any of the performance measures tested in the study. The insignificance of the HERF suggests that there could be a nonlinear relationship between ownership concentration and a firm’s performance. This study also did not find a relationship between market-based performance measures of companies and ownership concentration or the ownership structure of the Sri Lankan companies. This finding suggests the existence of market anomalies common to most of the emerging markets