Research
Effect of Ownership Diversity on Financial Distress: Evidence from Colombo Stock Exchange
Authors:
M. M. S. K. B. Bogamuwa ,
Wayamba University of Sri Lanka, LK
About M. M. S. K. B.
Department of Insurance & Valuation, Faculty of Business Studies & Finance
K. L. W. Perera
University of Sri Jayewardenepura, LK
About K. L. W.
Department of Finance, Faculty of Management Studies & Commerce
Abstract
Ownership diversity is defined as the distribution of ownership and control among various categories of shareholders. Many organizations' ownership structures have become increasingly diversified in terms of race, nationality, gender, and socioeconomic level in recent years. Globally, there's little consensus on how ownership diversity affects financial distress. Using the agency theory and entrenchment hypothesis, this study investigates how the diversity of ownership affects the financial distress of business firms. This research makes a contribution to the empirical literature by applying panel data analysis on 181 non-financial companies from 2012 to 2019 on the Colombo Stock Exchange of Sri Lanka. The study uses Herfindahl-Hirschman Index to measure ownership diversity. In contrast, Altman Z Score Analysis, Emerging Market Score, and Interest Coverage Ratio measure financial distress. The results of the logistic regression models demonstrate that ownership diversity significantly and positively affects financial distress. This signifies that the diversified ownership structure raises the agency cost as it incurs high monitoring costs to monitor diverse shareholders, leading to financial distress within business firms.
How to Cite:
Bogamuwa, M.M.S.K.B. and Perera, K.L.W., 2022. Effect of Ownership Diversity on Financial Distress: Evidence from Colombo Stock Exchange. International Journal of Accounting and Business Finance, 8(2), pp.82–105. DOI: http://doi.org/10.4038/ijabf.v8i2.126
Published on
31 Dec 2022.
Peer Reviewed
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