MANAGERIAL ATTITUDE TOWARDS FINANCING CAPITAL EXPENDITURE

Free cash flow has been subject of discussions in the last few decades. Central to these discussions is how best free cash flows should be utilized. This paper examines the link between free cash flow and debt; on capital expenditure. An unbalanced panel data was obtained from audited annual financial statements of twenty-six companies listed in the Malta Stock Exchange. The data covered an eight-year period, from 2012 to 2019, and was analysed using STATA14 and Microsoft Excel. F-test was initially conducted to choose between random effect and fixed effect models but result of the estimates was found unreliable, hence Hausman test was employed. Other diagnostic tests, including Durbin-Watson and Breusch-Pagan, were equally conducted. Our results showed a significantly negative association between the free cash flow – capital expenditure dyad, and a significantly positive association between debt and capital expenditure. These suggest that firms rely more on debt to finance capital expenditure, than free cash flow. Recommendations were also proposed concerning the efficient utilization of free cash flows available to firms.