Corporate financial strategies of Maltese SMEs : an investigation

Abstract

Purpose: The principal aim of this study is to investigate the corporate financial strategies of Maltese SMEs. Those factors that have an indirect impact on the constituents making up the corporate financial strategies are also addressed. Design: The objectives of the study are achieved through an online survey. This survey collected 151 responses from micro, small and medium enterprises (SMEs). Findings: The financing and investment strategies of enterprises make up the constituents of the corporate financial strategy. This study reveals that the corporate strategy of SMEs is based on an environmental scan. The financing strategy is reflected in how SME owners try to meet their financing needs from a pecking order of first using internal sources and once external finance is required, debt is preferred over equity. To control their borrowing levels and profit retention levels, SMEs set financial policies. The preferred sources of finance as used by SMEs are also determined. The investment strategy is explored in the investment needs of local SMEs and the management of working capital. Findings reveal that finance is used as a strategic resource subject to the overall corporate strategy. However, finance is not managed correctly to gain a competitive advantage. Overall dissatisfaction with the Maltese financial system was cogently expressed by the respondents in this study. Results indicate that accountants are the most trusted financial advisers to SMEs. Conclusions: It is evident from the analysis of the financial strategy constituents that the perceptions of decision makers, internal and external factors, the level of financial literacy, lenders of finance and perceived constraints play an influential role on the corporate financial strategy. Although the majority of SMEs do a short-term cash flow plan, the long-term financial plan needs to be considered since it will ii have negative repercussions on the investment strategy if sources of finance are not available when needed. The reluctance to use equity from outsiders is also evident in this study, emphasising the family-business culture on the island. Value: The study recommends ways how the direct and indirect factors constituting the corporate financial strategies of local SMEs can be improved. It is imperative that SMEs employ an efficient corporate financial strategy to stay in business and keep prospering.