Ownership Structure and Risk Management: Evidence from Sri Lanka

Abstract

Today almost all business firms confront with an important issue that is conflict of interest between shareholders and management of the company. Corporate governance is a key mechanism that articulated to protect the interests of shareholders and all other stakeholders. As a part of corporate governance, the ownership structure performs a significant role in minimizing the cost related with the separation of ownership and control of the company. Different ownership structures take different dimensions and it affects to determine the directions of an entity. According to the ownership structure entities have to face various risks as well as challenges. Many researchers found that the way of accepting and managing risk is different according to the various structure of ownership. Country’s social, economic, political and regulatory environment affects to determine the shape of ownership structure of an entity. So it should necessarily be investigated whether the ownership structure affects towards the risk management of the listed companies in Sri Lanka. This research focuses to investigate the effect of ownership structure on risk management while filling the contextual research gap. For this study, all companies listed in Colombo Stock Exchange (CSE) are considered as the population. Stratified sampling method was employed and 30 companies were selected. The analyzing time period was 2012 to 2017. Data was collected from annual reports of selected companies. Institutional Ownership, Family Ownership and Ownership Concentration are considered as independent variables. As the control variables Firm Size and Financial Leverage are taken into account in this study. Risk management is considered as the dependent variable.Risk management was measured by using beta value. Regression analysis was employed to analyze the data. The findings of this study revealed that ownership structure significantly affects on risk management. The results of this study will help entities to articulate and form their ownership structure so as to mitigate and manage the risk of that entity.