Financing of export operations of selected Maltese companies

Abstract

Purpose: The main aim of the study is to identify the various financial sources used by export companies to finance their export operations. It identifies the difficulties encountered when commencing export operations and the need for additional financing due to extra costs incurred. Furthermore, the study shall consider whether such additional financing may require the company to go public to gain further financing alternatives. Design: To meet the objectives of the study, a qualitative approach was adopted by setting up semi-structured interviews with personnel from the financial department of twelve selected exporting companies. Findings: The results of the study are an illustration of the Pecking Order theory. The first source that companies resort to is internal finance from the retained earnings. When internal financing is not sufficient for the investment needed, debt financing is then considered. The most common source of external debt financing of the selected companies is bank financing, being bank loans and bank overdrafts. Results show that equity financing is not a common choice and would be used only as a last resort due to control dilution. Conclusion: This study concludes that internal financing is the most common amongst Maltese export companies, and when it comes to external financing, they are still being dependent on the bank-based system. This source may come at a more expensive price when compared to other sources available. Other alternatives, mainly referring to the public market is accessible but is not highly considered to be the best option by family-owned businesses. Value: This study may be useful for businesses considering to start export operations because it alerts them to the barriers and challenges faced in the early stages and afterward. It will provide businesses with information about the financing sources available and which are mostly used by companies. Furthermore, this study provides a comparison between the finance sources to help businesses decide which is the most suitable for them.