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.