An investigation into the market failures in investment finance of large-scale non-financial enterprises in Malta

Abstract

Whereas a substantial volume of economic literature focuses on the market failures affecting micro, small and medium-sized enterprises, academic studies tackling failures associated with the investment finance of large firms is scarce probably because such firms can tap financial resources with relative ease. However, this is not the case with typical Maltese large undertakings which can be described as moderately large – effectively they are small Mid-Caps. In this study, various economic papers dealing with specific market failures, relevant to Maltese large firms, as well as pertinent EU Regulations and available support measures were thoroughly analysed alongside survey results concerning the enterprises in question. It transpired that Maltese large firms tend to finance their investments via internally generated sources and to a notably lower extent through bank loans, whose costs and collateral requirements give rise to dissatisfaction. Debt security issuance is slight while investment funding through share issuance, leasing or joint ventures is virtually non-existent. A markedly low level of investment in necessary intangible assets indicates that the incidence of financially-constrained firms could be more pronounced than perceptions would suggest. A coordinated policy response is recommended, whereby Malta Enterprise Corporation would collaborate more closely with relevant local institutions and associations to implement support measures sufficient to Maltese large enterprises. This necessitates adept lobbying by such organisations within EU structures for further modifications to State aid rules. On their part, domestically-based large firms need to consider other external sources of investment finance besides conventional ones. This dissertation contributes to the economic literature by shedding light on usually-underestimated market failures affecting Maltese large enterprises and offers recommendations how such drawbacks could be resolved or mitigated.