Small companies in Gozo and the directors’ use of financial information

Abstract

Purpose: The Maltese economy relies heavily on small companies as 99.8% of companies qualify as SMEs according to the GAPSME framework. Hence, their survival is very important. This study therefore examines the directors’ financial literacy and the use of financial information for decision-making. Design: This study adopted a qualitative research design in order to address the research objectives of the study. In total 15 interviews were carried out with small company directors in Gozo. Findings: The study revealed that most small company directors in Gozo lack financial knowledge due to lack of education. This lack of financial knowledge affects the preparation and use of financial information. As a result, the majority appoint an external accountant to prepare the financial information of the company. Furthermore, the findings demonstrated that the majority of the directors interviewed do not make use of financial statements for decision-making. However, some find other financial information to be more useful. The use of financial statements for decision-making is affected by a number of factors including internal expertise and the frequency of financial statement preparation. Apart from the use of their company’s financial statements, small company directors can also make use of other entities’ financial statements. However, the findings found that none of the interviewed directors make use of other entities’ financial statements. Conclusion: The use of financial information for the purposes of decision-making is essential because this could result in the survival of small companies. However, most directors in Gozo do not recognise the importance of the use of financial information for decision-making and the importance of financial literacy. Value: This study aims to provide information on the use of financial information by small company directors in Gozo. To date there are no other studies focusing on small companies in Gozo and the use of financial information. This study will therefore unveil new information.