Financial distress among SMEs in Malaysia: an early warning signal

Muhammad M. Ma’Aji, Nur Adiana Hiau Abdullah, Karren Lee Hwei Khaw

Research output: Contribution to journalArticleResearchpeer-review

3 Citations (Scopus)

Abstract

Small and medium-sized enterprises (SMEs) play an important role in the economic development of a country. To ensure SMEs continue to survive, a failure prediction model needs to be developed so as it could serve as an effective early warning signal. By using multiple discriminant analysis (MDA) and logistic regression for 176 manufacturing companies from 2000 to 2012, controlling shareholders, number of directors, gender of managing director, earnings before interest and tax, size, and age of company are found to be significant in predicting financial distress of SMEs in Malaysia. The results show that model 3 which includes all variables provides a higher accuracy rate for both the multiple discriminant analysis and logistic regression. This indicates that a good prediction model could not focus on financial and non-financial or corporate governance variables alone. Furthermore, it is found that the accuracy rate of the logit model is higher than the MDA for all models.

Original languageEnglish
Pages (from-to)775-792
Number of pages18
JournalInternational Journal of Business & Society
Volume20
Issue number2
Publication statusPublished - 2019
Externally publishedYes

Keywords

  • Financial distress
  • Governance
  • Logit model
  • Multiple discriminant analysis
  • Small medium-sized enterprises

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