Long-term financing in selected Maltese four and five star hotels : an analysis

Abstract

The most widely accepted objective of any firm is to maximise the value of the firm for its owners, that is, to maximise shareholder wealth. Capital structure plays a crucial role in maximising shareholder value, as the right mix between debt and equity should maximise the growth in long-term profits, and hence in the value of the firm. Therefore, financing decisions play a vital role in obtaining the ideal capital structure, and hence in maximising shareholder value. This study aims to identify and analyse the various types and sources of finance available for the financing of investments in the hospitality industry. The merits and drawbacks of the several types and sources of finance will be discussed. Additionally, the various factors influencing the choice of finance will be identified and analysed. When deciding on the sources of finance for a capital project, a firm often finds itself speculating whether to use just debt or just equity, or else a judicious mix of the two. If a mix of the two is to be utilized, the firm must decide on the proportions of debt and equity in this mix. Various capital structure theories discuss this concept. These will be examined, and an analysis will be made on whether these are being referred to in practice. Finally, the study has also prepared a number of recommendations, and suggestions for further research.