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

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.