Sources of finance in the Maltese manufacturing industry : an evaluation of recent trends

Abstract

Purpose: This research was meant to identify the sources of finance which Maltese manufacturing companies mostly use. Sources of finance are needed in order to have sufficient funds available for purchasing working capital items and fixed assets. Sources of finance are divided into internal and external sources of finance. If companies do not utilise any finance, the company may be unable to grow in the future as it would only be able to utilise its cash and bank accounts. This research tried to identify also which factors are mostly considered prior to resort to particular sources of finance. Design: A questionnaire was distributed amongst manufacturing companies operating in Malta. The questionnaire was mainly distributed via a web-based survey by using Google Forms. Those manufacturing companies who did not respond were sent a reminder. The other companies who could not be contacted via e-mail were sent a questionnaire via conventional mail. Data was collected and analysed with SPSS and Microsoft Excel. There were 34 responses out of a total 267 companies. Findings: Manufacturing companies rely on bank financing and retained earnings when financing working capital items and fixed assets. Furthermore, debt financing is clearly favoured over equity financing. Manufacturing companies consider the cash flow ability and the repayment obligations towards other lenders before seeking finance. Conclusions: Internal sources of finance are useful as they can limit the amount of external finance which has to be borrowed. Debt will create interest payments obligations which the company will be obliged. At maturity, the company will also have to repay the borrowed amount. Manufacturing companies tend to rely on bank financing at the expense of other sources which were rarely selected. Implications: The implication of the study is that the banking sector is of high importance to the Maltese economy. It is the main provider of finance to the manufacturing industry which is essential to the Maltese economy.