JEFMP 3(1-2), 36-51

This study examines how corporate decision-making dominance leads to agency conflict between managers and shareholders of Sri Lankan firms, where board members and managers are assumed to hold dominant decision-making power derived from legitimate authority and socio-cultural characteristics. The panel dataset spanning over thirteen years from 2011 to 2023 used in this study covers 200 firms listed on the Colombo Stock Exchange. Different proxies were separately used to measure board decision-making dominance, managerial decision-making dominance, and agency cost. The findings reveal that board decision-making dominance does not increase agency costs, suggesting that existing good practices of corporate governance may have encouraged a dual leadership structure and board balance. In contrast, managerial decision-making dominance leads to severe agency conflicts, suggesting that when managers hold excessive decision-making power, agency conflicts are intensified. In terms of large shareholders, their presence does not play any moderating role in the relationship between corporate decision-making dominance and agency dynamics. Their influence appears insufficient to produce a significant interaction effect, likely due to the absence of active shareholder engagement in Sri Lanka. In conclusion, the study recommends the implementation of checks and balances to prevent excessive concentration of decision-making power within the boardroom and management team. Thus, regular reviews and assessments on the distribution of power among upper echelons are required to maintain a balanced and effective governance structure.