Family influence in Maltese listed companies : the implications on corporate governance

The Maltese market is and has always been, dominated by Family Businesses (FB) to the extent that such entities are vital to the resilience of our economy. There tends to be the presupposition that as soon as FBs convert to a public listing, they start implementing rational governance mechanisms, contrasting with the "non-rational behaviour" which is normally associated with the dynamics of running an FB. With this study the authors focus on equity-listed Maltese companies on the Malta Stock Exchange (MSE) and aim to build an understanding on the current situation of such entities’ GC structures to possibly conclude on whether Maltese LFBs are taking the initiative to apply appropriate governance measures which meet their strategic needs, even though there are no obligatory regulations or recommendations on the matter. Moreover, they will shed light on (i) the characteristics of LFBs; (ii) the family governance structures (‘FGS’) in such companies including the role of family institutions as well as the family influence on executive appointments and top positions; and (iii) recommend regulatory and other improvements. Authors carried out semi-structured with 18 participants in charge of corporate governance in Maltese listed companies (MLCs) and conclude that Maltese LFBs do not as yet acknowledge the significance of their distinctive features and the implications of such features on their CG structures. As a result, the application of specific structures related to FBs, in particular, the family constitution and the family institutions are as yet not to be found.peer-reviewe

The implications and relevance of a tax exemption for co-operatives : the case of a small European state

Purpose: To assess the relevance of the tax exemption being granted to Maltese co-operatives on their ploughed-back profits to the creation of such legal structures and to their financial performance. Design/Methodology/Approach: We do this by carrying out 21 semi-structured interviews and reviewing of the financial statements of four co-operatives over a period of five years. Findings: Results show that such a tax exemption may indeed be attracting a few applicants to form co-operatives. However, although the exemption may be serving as an incentive to encourage such start-ups, their promoters may be commonly lacking more valid reasons for choosing to set up this particular structure, which is meant to balance both commercial and social goals. The article therefore concludes that the tax exemption on its own is evidently insufficiently effective in the promotion of genuine and financially successful start-ups and recommends that a review of the tax exemption provision is likely to be beneficial. Further recommendations include (i) rendering such a provision more relevant by linking its granting to the results of a social audit for each co-operative,(ii) reviewing the legal asset-lock provision so as no longer to undermine the attractiveness of the tax exemption, and also (iii) launching vigorous education programmes on the raison d’etre of a co-operative. Practical Implications: Although there were several studies relating to Maltese co-operatives, there has not been a study specifically dealing with the tax exemption for such entities. Accordingly, this research study would prove to be useful in assessing the relevance of the tax exemption conceded to Maltese co-operatives by delving into its implications. Originality/Value: This study will identify any possible amendments that could be made to resolve the tax implications encountered.peer-reviewe

The corporate governance code and compliance by Maltese listed companies

Purpose: In this paper we lay out the evaluation of non-compliance with the Code of Principles of Good Corporate Governance and the analyses of the adequacy of the explanations provided thereof, including the overall effectiveness of the existing regulatory framework. Design/methodology/approach: To achieve the objectives of this study, a review of the non-compliance section of the corporate governance statements of each Maltese listed company was carried out for the years 2012, 2014 and 2016. Furthermore, 13 semi-structured interviews were held. Findings: The paper finds that a general insufficiency in the explanations provided for non-compliance exists. Some entities give only lip service to the provisions of the Code as they fail to realise the benefits an entity may reap from having good corporate governance structures in place. There is a lack of education and awareness in this regard, and not only on the part of companies but also on the part of shareholders who seem to make minimal use of the information provided in the corporate governance statements. Practical implications: The study raises awareness of the need of improving corporate governance practices, as well as education on corporate governance, across Maltese listed companies. It is hoped that the recommendations made may encourage entities to improve in their reporting and the regulator to provide further guidance to entities to do so. Originality/value: Prior to the amendment of existing rules, increased enforcement of the current regulatory framework and monitoring by the regulator is required. The study highlights the misconceptions on the auditor's role in corporate governance.peer-reviewe

The role of the Maltese Public Accounts Committee in public finance

The objectives of this paper are to ascertain and assess the role of the Public Accounts Committee (PAC) in Maltese public finance, analyzing its operational effectiveness and the barriers to it, and assessing its relationships with major stakeholders. The research methodology involves the conduct of nineteen semi-structured interviews, attendance to one PAC sitting, a review of applicable PAC transcripts, and an examination of relevant legislative pieces governing the PAC. The study finds that PAC is fulfilling a wide proportion of its remit, recently exercising an improved role. However, the reoccurrence of errors and weaknesses within the public sector highlights the need for the Committee to investigate further areas falling within its scope, thus acting as a deterrent to the misuse of public funds. Additionally, improvements in the PAC’s operational effectiveness are called for, particularly with regard to its structure and member composition, as well as its communication of end results and follow-ups. The appointment and participation of technical expertise in PAC meetings, and the widening of the PAC’s mandate to incorporate broader topics would also be conducive to enhanced effectiveness. In addition, while the Committee’s relationships with its major stakeholders are deemed positive, it is evident that there is still room for improvement. The PAC is instrumental in the conduct of effective financial scrutiny and oversight, which in turn enhances its contribution to the proper management of Maltese public finances. Yet, achieving a strong impact may be restricted by the existence of barriers that are impeding the Committee’s operational effectiveness. While the surmounting of such obstacles becomes highly relevant for the PAC to retain its watchdog function, the maintenance of effective relationships with its main stakeholders is also necessary if it is to make the most of such links. It is hoped that this paper contributes to +further progress in the PAC’s operations and in the public sector’s use of public resources.peer-reviewe

The co-operative regulatory framework in a small state : reviewing the alternatives

The objectives of this research are to identify the major areas needing reform in the co-operative regulatory framework of the small state of Malta and to evaluate possible alternatives. Objectives were achieved by the analysis of the legal framework and the conduct of semistructured interviews. Findings indicate a general yearning for co-operative regulation to be less paternalistic and to allow greater financial and operational autonomy to co-operatives and their institutions. However, results highlight the importance of upholding the distinct co-operative identity encompassed by the co-operative values and principles. The article concludes that it is the areas of co-operative financing, the distribution of returns and the role of co-operative institutions needing most addressing. Recommendations include amending the provisions relating to the redemption of capital upon member exit, removing the asset lock on ploughed-back surpluses, and updating regulations regarding representative co-operative organisations and the Maltese co-operative funding entity, the Central Co-operative Fund.peer-reviewe

Financial reporting in Maltese voluntary organisations

In this paper we analyse the adequacy and effectiveness of the legal aspects of the current Maltese voluntary organisations’ (VOs) regulatory framework, the guidelines and best practices being adopted by Maltese charities in compiling their financial reports. In doing this we also look at the key operational internal control and other challenges being faced by such VOs in complying with the existing regulatory framework. Data is also gathered through the responses of an online questionnaire, which we distributed to enrolled VOs and through responses of semi-structured interviews carried out with the financial administrators of eleven large charities. Findings reveal that while the existing VO regulatory framework was a considerable improvement, changes are still necessary since gaps still remain and need to be resolved. This study contributes to the enhancement of the Maltese VO regulation by identifying and highlighting these gaps and providing recommendations to mitigate and resolve them.peer-reviewe

Corporate governance transparency in small listed entities : the case of Malta

Purpose: The objectives of this study are to examine whether a lack of transparency is a common corporate governance feature of listed entities (“MLEs”) in the small European state of Malta and, if so, to assess the possible implications of such a stance. Design/Approach/Methodology: In order to achieve such research objectives, a predominantly qualitative mixed methodology was adopted. This involved carrying out thirteen semi-structured interviews with MLE and audit firm representatives, these being supported by an examination of the corporate governance statements of MLEs for the 2015-2017 periods. Findings: Results show a general lack of transparency in corporate governance reporting, with a common MLE tendency to comply only at a superficial level with the principles of good corporate governance and thus to often fail to sustain an appropriate level of transparency and governance structures. Practical Implications: It is recomended to increase company and shareholder awareness so as to help towards further improving current attitudes. Originality/Value: The study is particularly envisaged to contribute towards encouraging stakeholders in small-state contexts to reassess their current perspectives towards corporate transparency.peer-reviewe

Drivers and drawbacks of an external auditing career

With this study the authors shed light on Maltese auditors’ perceptions about a professional career in auditing. They examine the motivational factors that steer individuals towards a career in auditing. In addition, an analysis of the drawbacks encountered in the auditing profession from the perspective of the Maltese auditors is also carried out. An explanatory sequential mixed method design was employed. A questionnaire was first distributed to audit practitioners working within Maltese audit firms, and 205 responses were received. This was followed by ten semi-structured interviews with auditors. Findings highlight job security as the most significant career driver and that if Maltese auditors had to look for another job, the majority would not opt for an audit-related post but would instead move towards other accountancy-related jobs. Moreover, it was concluded that factors such as heavy workload, stress and problems with managing work-life balance are associated with the auditing profession, especially by respondents working within Big Four audit firms in Malta.peer-reviewe

A comparative analysis of the EU public sector internal audit methodology and requirements

There is currently no standard or requiremen t guiding the approaches taken by the European Union (EU) Public Sector internal audit. Therefore, the approaches taken by each country, although having some similarities are different.The aim of this research is to compare the Latvian state administration internal audit approach with Latvia and Poland and evaluate each country’s internal audit approach according to internal audit maturity determinants. The latter have been determined from literature, the Compendium report. Thereby, shedding light on the Latvian’s internal audit approach maturity. The methodology includes a comparative study of 5 European countries’ public sector internal audit methodologies, by carrying out a documents analysis and evaluation of the existing normative acts, Authors recommend introducing a common internal audit procedures manual, standards and guidelines for the public sectors in the EU Member States. They believe that this will improve internal controls and internal audit data analysis around Europe. The main results of the study will highlight the maturity of each of these countries’ internal audit approaches and their pros and cons. It will also highlight where improvements might be required or where changes are necessary.peer-reviewe

The applicability of the social enterprise in a small state : the case of Malta

The main objective of this study is to assess the social, financial and corporate governance (CG) implications of the proposed social enterprise (SE) legislation in Malta. In light of such implications, the study also assesses the applicability of the SE under such legislation. A mixed methodology was adopted. Fifteen interviews were held with experts. Such data was supplemented by 52 valid responses to a questionnaire sent both to co-operatives and voluntary organisations (VOs) in Malta. The study concludes that the proposed legislation has various positive social, financial and CG implications and that the SE, as being proposed, is applicable and filling a void within the Maltese environment. Although such legislation offers both a new legal form and a label, its reference to the Companies Act which ignores SEs’ unique social dimension is questionable. Alternatively, a holistic SE regulatory framework may be developed. Furthermore, statutory thresholds, such as for dividend distribution and trade income, are to be possibly rendered more flexible. This study aspires to raise awareness about the implications of a proposed regulatory framework in Malta, hence hopefully promoting the application of the concept.peer-reviewe