Rights issues in Maltese listed companies : a comparative study

Abstract

PURPOSE: The objectives of this research were to analyse all rights issues carried out by Maltese Listed Companies, while identifying the main motives, benefits, costs and disadvantages involved, whilst also taking into consideration the insights of CFOs of listed companies as well as a number of financial analysts. DESIGN: In order to achieve the above objectives, a qualitative research approach was undertaken, by means of semi-structured interviews with eight CFOs and three financial analysts. FINDINGS: From this research, it was concluded that the most common reason why companies carry out a rights issue is in order to increase their cash holdings. Moreover, nearly all respondents acknowledged legal and marketing costs as the main costs when carrying out a rights issue. When it came to the benefits involved, it was agreed that the main benefit for the issuer would be the fact that the company will further gain the trust of the shareholders, whilst for shareholders, they are given a further investment opportunity. On the other hand, most respondents seemed to struggle to come up with a reasonable answer as to what the main disadvantage for the issuers would be, whilst some stated that the main disadvantage for shareholders would be that those who do not buy into the rights issue will see their value in the company diluted. CONCLUSIONS: This study concluded that Maltese listed companies prefer to issue debt instruments rather than equity instruments. It also became evident that a number of CFOs of listed companies have never gone through a rights issue and hence their experience is limited to technical knowledge relating to the topic. VALUE: This research is the first to tackle rights issues in the local scenario, and so seeks to understand the motivation to carry out a rights issue in Malta, and what the future holds for the local market.