A review of APMs application in the last decade amongst Maltese listed entities

Abstract

Purpose: This study seeks to determine whether Maltese listed entities make use of Alternative Performance Measures (APMs) in annual reports and company announcements. Furthermore, this study also seeks to discover why are these APMs used in such a scenario and whether or not they are used to hide an adverse position. Design: The objectives of this study were achieved by both a content analysis and by semi-structured interviews. The exercise of the content analysis consisted of going through the annual reports of ten consecutive years and company announcement depicting preliminary results of all listed entities. The interviews conducted were with Chief Financial Officers (CFOs), auditors and an analyst from the Malta Financial Services Authority (MFSA). Findings: From the content analysis, it transpired that Maltese listed entities do make use of APMs both in their annual reports and the preliminary results company announcements. Furthermore, it was also discovered that APMs are largely found in the management commentary within annual reports. The most popular utilised APM is the EBITDA and, indeed, APMs can and are applied to camouflage an adverse position. Subsequently, it was conceptualised that APMs are used for four main reasons, being marketing, mastering, manipulating and mirroring. Conclusion: The study concludes that listed entities need to abide with some form of guidelines or recommendations in order to decrease the instance of using APMs for manipulation. Furthermore, more information needs to be passed on to listed entities regarding these measures on how they impact investors, particularly the non-professional ones. Value: Locally, this is the first study conducted to assess the use of APMs amongst Maltese listed entities. This study is expected to be valuable to professionals who wish to further enhance their knowledge on APMs and to investors to better understand why APMs are used in entities’ financial reporting.