THE OWNERSHIP FACTOR: UNDERSTANDING FIRM RISK IN SRI LANKA'S CORPORATE LANDSCAPE

Abstract

Corporate governance has gained paramount importance in the wake of global corporate scandals and financial crises. This study delves into the nexus between ownership structure and firm risk, with a specific focus on the Sri Lankan perspective. In the late 1980s through the early 1990s and into 2008, Sri Lanka witnessed catastrophic business failures, particularly within the Banking and Finance Industry, attributed to a lack of effective corporate risk governance. Drawing from Jensen and Meckling's seminal work, which highlights the influence of corporate governance measures such as board structure, compensation, and ownership on a firm's risk and performance, this research scrutinizes the intricate relationship between ownership structure and corporate risk-taking in Sri Lanka. While ownership concentration is a dominant feature of Sri Lankan listed companies, the exact impact of concentrated ownership on firm risk remains unexplored. This study aims to fill this gap by conducting empirical analyses on ownership structures and their implications for firm risk. By exploring the unique Sri Lankan context, it provides insights into the intricate dynamics between ownership types and risk in the corporate landscape. The paper navigates through the pertinent literature, develops hypotheses, and presents the theoretical framework. The methodology, findings, implications, and suggestions for future research are subsequently discussed.