Ownership Concentration and Degree of Compliance with Corporate Governance Best Practices of Public Listed Companies in Sri Lanka

Abstract

This study examines the relationship between ownership concentration and the degree of compliance with corporate governance best practices of public listed companies in Sri Lanka. Firstly, the study examines ownership concentration in terms of ownership types of fifty-two companies listed on the Colombo Stock Exchange (CSE) for a five-year period from 2009 to 2013 by focusing on their ultimate ownership. Accordingly, two ownership types-‘closely held’ and ‘widely held’-were identified. Secondly, to measure the degree of compliance with corporate governance best practices, a Corporate Governance Index was developed incorporating selected governance characteristics pertaining to the board of directors. The study was conducted as a quantitative study based on secondary data collected from annual reports. The study finds that the ownership is concentrated in most of the selected companies with the presence of a controlling shareholder and widely held entities are rare in Sri Lanka as in the case of other Asian countries. Further, the analysis finds that a higher degree of ownership concentration has a significant negative relationship with compliance with corporate governance practices. This indicates that the degree of compliance with corporate governance best practices is significantly lower in closely held companies than in widely held companies. Hence, the study concludes that the degree of ownership concentration in Sri Lankan public listed companies has a significant influence on compliance with the corporate governance practices pertaining to board characteristics.