Impact of Ownership Structure on Financial Performance of Listed Companies in Sri Lanka

Public limited companies are generally recognized as the dominant business entities in the financial market and they can contribute much to the economic development of a country. The financial performance is a key for the success of companies. However, it is determined by numerous factors. Corporate Governance, which is defined as the system by which companies are directed and controlled, is considered as one of the significant determinants of the performance of companies. But, the corporate governance is formed by ownership structure, which is represented by the distribution of voting equity shares owned by the shareholders who can be categorized with various identities and magnitudes. This study identified a research problem as a contextual gap in explaining the influence of ownership structure on the variations of financial performance of listed companies in Sri Lanka. Hence, this study examined the level and variations of the ownership structure in terms of ‘Concentration’ and ‘Identities’ of shareholders in the companies listed on the Colombo Stock Exchange in Sri Lanka, and it measured the average level and variance in the financial performance of those companies as well. The study further investigated the linear relationship between the ownership structure variables and the financial performance of those companies, and evaluated the direct impact of those variables on their financial performance by controlling company’s characteristics, and applying the Ordinary Least Square Regression. The study was carried out using data collected from a sample of 100 listed companies randomly selected from nineteen different sectors which consist of 290 listed companies in Sri Lanka. The concentration and identity of ownership structure across the companies in a past reporting period were measured as the quantitative interval measure variables by the researcher with the retrospective cross sectional observations on distributions of equity shares from the annual reports of a sample of 100 listed companies for the financial period 2024/2025 ended 31st March 2025. The financial performance of those companies was measured with the indicator of the ROA as a retrospective cross sectional observation, which was calculated as an interval measure by the researcher referring to the annual reports of each company for the same financial period. From the data analysis, it was found that the listed companies in Sri Lanka are characterized with a significant degree of Concentrated Ownership and with the identities of Managerial Ownership, Diffuse (Individuals) Ownership, Institutional Ownership, and Foreign Ownership. Most of these variables have positively correlated with the financial performance indicator (ROA), but, the Diffuse Ownership identity has a negative association with the financial performance of those companies, however, it is found insignificant. Further, the simple and multiple regression analysis revealed the ownership structure variables have a significant positive impact on the financial performance, except the Diffuse Ownership variable. Hence, it is concluded that the various identities of ownership structure are present with significant variations among the listed companies in the Sri Lankan context and they have significant positive influence on the financial performance. However, the Concentrated Ownership structure has the most positive effect on the financial performance, which recommends that the ownership structure dominated by few large shareholders could be the ideal one for improving corporate governance, managerial efficiency, and thereby the financial performance of companies, while the ownership identities, such as Managerial, Institutional, and Foreign ownership, can be significant in directing the companies towards better financial performance. Diffuse ownership could not be recommended for companies in the Sri Lankan context since it does not have sufficient empirical evidence to establish a positive effect. However, large size of observations on these variables can result in different conclusions and implication. This study has only applied the conceptual model that could investigate the direct impact of the ownership structure on the financial performance of companies. If this model is modified to include a mediating or moderating variable related to corporate governance, such as board size, board diversity, and CEO duality, the accuracy of predicting power of ownership concentration and the identities including diffuse ownership on financial performance might be improved.