Malaysia Term Paper

Asian Social Science; Vol. 9, No. 6; 2013 ISSN 1911-2017 E-ISSN 1911-2025 Published by Canadian Center of Science and Education

The Determinant of Capital Structure of SMEs in Malaysia: Evidence from Enterprise 50 (E50) SMEs

Asmawi Noor Saarani1 & Faridah Shahadan2

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Institute of Malaysian and International Studies, Universiti Kebangsaan Malaysia, Malaysia Faculty of Economic and Management, Universiti Kebangsaan Malaysia, Malaysia

Correspondence: Asmawi Noor Saarani, Institute of Malaysian and International Studies, Universiti Kebangsaan Malaysia, 43600 Bangi, Malaysia. E-mail: sasmawi@gmail.com Received: March 14, 2013 doi:10.5539/ass.v9n6p64 Abstract Capital structure have implications in determining the ability and success of a firm, especially to small and medium-sized enterprises (SMEs). This paper analyses the capital structure of SMEs in Malaysia focusing on Enterprise 50 (E50) SMEs. E50 is an annual awards program initiated by government and organized by SME Corporation & Deloitte Malaysia since 1997 to recognize the 50 best SME companies in Malaysia based on their performances and potential to succeed. The secondary data from Companies Commission of Malaysia has been collected for the study. The study employed regression analysis on 334 companies, utilised the accounting data for the five year period of 2005 to 2009. Capital structure is the Dependent Variable referring to debt ratio of the companies, decomposed into Long Term Debt ratio and Short term Debt ratio. The Independent Variables (IV) are age; size; tangibility; liquidity; profitability; growth and taxation. Two theories of capital structure have guided this study i.e. the Trade-Off Theory and the Pecking Order Theory. The study found that size is important if we decomposed the debt into longand short term. In addition, asset tangibility, liquidity and profitability are the main capital structure determinants for SMEs. Age and growth are important for a long term, while taxation is not an...