The Effect of Owner-Based and Lender-Based Governance Mechanisms on the Financial Performance of Listed Companies in Sri Lanka

G. Y. Ekanayake
Samanthi Senaratne
A. A. Azeez

Abstract

This study examines the effects of both Owner-based and Lender-based governance mechnisms on the firm financial performance in terms of three aspects, namely profitability, firm value and firm survival. From the Colombo Stock Exchange, the current study selected a sample of 100 listed entities in which the debt capital is a key source of financing. The results indicate that Owner-Governance mechanisms would enhance the firm profitability where, Lender-Governance mechanisms deteriorate it. However, the latter aids sustain the corporates, by attenuating firm distress level. In conclusion, the two types of corporate financiers have got divergent expectations which they try to assure through their own governance mechanisms over the entity (investee), as reflected through different effects on three aspects of firm financial performance. Thus, both governance mechanisms need to be considered as important factors in determining the different aspects of firm financial performance.

Keywords: Firm Distress Level, Firm Profitability, Firm Value, Lender-Governance, Owner-Governance

Volume 10, Issue 2
December 31, 2019
Pages: 103-133

DOI: http://doi.org/10.4038/cbj.v10i2.52

Suggested citation:

Ekanayake, G. Y., Senaratne, S., & Azeez, A. A. (2019). The effect of owner-based and lender-based governance mechanisms on the financial performance of listed companies in Sri Lanka. Colombo Business Journal. (10)2, 103-133. doi: 10.4038/cbj.v10i2.52

G. Y. Ekanayake
Department of Accounting, University of Colombo, Sri Lanka
gimhaniekanayake@gmail.com

Samanthi Senaratne
Department of Accounting, University of Sri Jayewardenepura, Sri Lanka

A. A. Azeez
Department of Finance, University of Colombo, Sri Lanka