Abstract:
Concentrated ownership generally leads to concentration of power within few
dominant investors and can result in increased agency costs and poor performance.
However, corporate governance literature provides conflicting empirical evidence
on this topic. For example, some studies argue that owner-managers in firms with
concentrated ownership have better incentives to enhance firm value. Therefore,
this study investigates whether ownership concentration affects firm performance
using data gathered over 2015 to 2019 from 66 firms listed under banks, diversified
financials, and insurance sectors in the Colombo Stock Exchange. Herfindahl-
Hirschman Index, calculated based on the proportion of shareholdings of the
ten largest shareholders, was used to measure ownership concentration. Firm
performance was measured using Tobin’s Q. A fixed-effects panel regression was
used to assess the effect of ownership concentration on the firm performance while
controlling for firm size and leverage. The findings suggest that higher ownership
concentration improves performance supporting the stewardship theory.
