Corporate governance from colonial Ceylon to post-civil war Sri Lanka

Kamil K. Nazliben (), Luc Renneboog and Emil Uduwalage ()
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Kamil K. Nazliben: Tilburg University
Emil Uduwalage: Wayamba University of Sri Lanka

Journal of Management & Governance, 2024, vol. 28, issue 1, No 10, 265-335

Abstract: Abstract This paper examines the corporate governance mechanisms in Sri Lanka, a country that only a little more than a decade ago emerged from a 30-year long civil war. We focus on the evolution of Sri Lanka’s corporate governance from historical, sociocultural, and institutional perspectives. Taking Sri Lanka as a case where inclusiveness and reconciliation at the board level is important, we aim to diagnose the key corporate governance issues which we then broaden towards other South Asia developing countries and provide a research agenda. Many Sri Lankan firms suffer from typical Asian-style agency problems; conflicts of interest between (i) minority and majority shareholders, (ii) shareholders and debtholders, and (iii) shareholders and stakeholders. The most prevalent agency problem is the expropriation of minority shareholders’ rights through ownership pyramids, cross-holdings, or intermediate private firms. Although creditor protection laws limit the expropriation of debtholders’ rights, firms’ widespread use of political connections forces banks to grant cheap credit at favorable terms. Poor stakeholder management creates agency problems following window dressing of ESG disclosures, corporate opacity, and ethnicity-and gender-based discrimination in the workplace. This study shows that social norms and ethical values play a non-negligible role in the functioning of the corporate governance regulation and in corporate culture in Sri Lanka.

Keywords: Agency problems; Bank-based economy; Corporate control; Corporate social responsibility; Corporate failure; Civil war (search for similar items in EconPapers)
JEL-codes: G33 G34 M14 N25 (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10997-023-09678-5

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