ABSTRACT
The advent o f globalization has posed serious challenges to regional economies and small businesses. Yet it is widely admitted that small businesses in Asia and Europe have provided significant boost to the local economy. Various studies highlight the strong performance o f small businesses in South and Southeast Asia. Small businesses have performed very well in Sri Lanka and this chapter offers a detailed study o f small businesses in Sri Lanka. A number o f authors, including Chua, Chrisman and Sharma (1999), have highlighted the concern o f incumbent presidents, or principals, o f family owned firms in maintaining the loyalty and involvement o f family members and non-family managers. These concerns arise from the principal’s inability to observe the actions o f agents, which include both family and non-family managers, or to mitigate the asymmetries o f information, which arise when the agent runs the business instead o f the owner. The objective o f this study is to investigate and explain, using the principal-agent framework, crosssectional variation in the managers o f small firms in Sri Lanka1, by determining the relationship between key firm-specific variables and the characteristics o f small firm managers. A countrywide, random survey is used as the basis for identifying cross-sectional variation due to differences in industry, size, ownership, and the relationship o f the manager o f the firm to the owners o f the firm. The characteristics o f firm managers include the age, education, management experience and employment background o f the managers. Since most managers surveyed were male, we were unable to establish cross-sectional variation on the basis o f gender.
