The Eurozone sovereign debt crisis and the financial performance of Maltese equity-listed companies

Abstract

Purpose: The Eurozone sovereign debt crisis has affected countries close to Malta, mainly those on the Southern border of the European Union. The purpose of this study was to determine how a section of Maltese businesses, comprising companies listing their equity on the Malta Stock Exchange, was affected by the turmoil in the Eurozone in terms of financial performance. Design: The objectives of the study were achieved by calculating the Z-Score for non-financial services companies, carrying out DuPont Analysis for financial services companies, calculating other selected ratios, and conducting semi-structured interviews with financial representatives from the listed companies. Findings: The findings of the study show that while the financial performance of the majority of companies was negatively affected by varying degrees, through the listed companies' business structures and management decisions, and aided by the situation in the general Maltese economy, the majority of equity-listed companies on the Malta Stock Exchange continued to operate unhindered by the Eurozone sovereign debt crisis and expressed optimism that they will emerge stronger from the crisis. Conclusions: The study shows that the listed companies within the scope of the study were fairly resilient to the economic conditions surrounding them and devised ways through business decisions to minimise their impact. This study also shows that Maltese banks' conservative approach paid off when there were pressures on European financial institutions, and their funding helped other businesses continue with their operations and investments during the Eurozone sovereign debt crisis, in the context of a Maltese economy which performed fairly well in the circumstances. Value: By maintaining a solid banking structure and ensuring that the economy remains on a sound footing through responsible Government fiscal policy, businesses can take advantage of their economic environment and take the necessary decisions to mitigate the effects and exploit the opportunities arising from the Eurozone sovereign debt crisis.