Determinants of SME’s failure in Malaysia and Nigeria

Determinants of SME’s failure in Malaysia and Nigeria

Small and medium-sized enterprises (SMEs) play an important role toward economic development worldwide. Predicting bankruptcy among SMEs can have a significant impact on the economy as an effective early warning signal. This study develops bankruptcy prediction models for Malaysian and Nigerian SMEs...

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Main Author: Ma’aji, Muhammad Muhammad
Format: Thesis
Language:eng
eng
Published: 2018
Subjects:
HG Finance
Online Access:https://etd.uum.edu.my/7743/1/s900709_01.pdf
https://etd.uum.edu.my/7743/2/s900709_02.pdf
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institution Universiti Utara Malaysia
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language eng
eng
advisor Abdullah, Nur Adiana Hiau
Khaw, Lee Hwei
topic HG Finance
spellingShingle HG Finance
Ma’aji, Muhammad Muhammad
Determinants of SME’s failure in Malaysia and Nigeria
description Small and medium-sized enterprises (SMEs) play an important role toward economic development worldwide. Predicting bankruptcy among SMEs can have a significant impact on the economy as an effective early warning signal. This study develops bankruptcy prediction models for Malaysian and Nigerian SMEs by combining financial, non-financial, corporate governance and macroeconomic variables using the logistic regression and artificial neural network (ANN) methods. The accuracy rates obtained by those two methods were then compared. In developing the estimated model, 1,556 (632) SMEs from the manufacturing sector in Malaysia (Nigeria) are selected. Three sub-samples are created representing 3-years, 2-years and 1-year prior to bankruptcy, with total observations of 666 (344), 470 (172) and 420 (116) respectively. Each sub-sample comprises 50 percent nonbankrupt and 50 percent bankruptcy firms, from years 2000 to 2014. The findings show that four of the financial variables, namely, lower profitability, high leverage, insufficient liquidity and high operating expenses are associated with bankruptcy among SMEs in Malaysia and Nigeria. As for the non-financial variables, the results indicate that young SMEs and those located in less industrialised states are more likely to go bankrupt. In addition, the corporate governance variables, such as number of directors, independent director, managing director duality, controlling shareholder, ethnicity and gender of managing director are found significant. Moreover, high unemployment rate is associated with bankruptcy among SMEs in Malaysia and Nigeria, while high inflation rate as well as lending rate are associated with SMEs bankruptcy only in Nigeria. The result shows that the ANN model leads to a higher predictive accuracy rate compared to the logistic regression model for Malaysia and Nigeria. The study reveals that SMEs should increase the number of independent directors, discourage CEO duality and reduce ownership concentration. Financial institutions could use this study as a reference model to manage credit risk of SMEs while the government agencies may use it to improve their existing policies.
format Thesis
qualification_name Ph.D.
qualification_level Doctorate
author Ma’aji, Muhammad Muhammad
author_facet Ma’aji, Muhammad Muhammad
author_sort Ma’aji, Muhammad Muhammad
title Determinants of SME’s failure in Malaysia and Nigeria
title_short Determinants of SME’s failure in Malaysia and Nigeria
title_full Determinants of SME’s failure in Malaysia and Nigeria
title_fullStr Determinants of SME’s failure in Malaysia and Nigeria
title_full_unstemmed Determinants of SME’s failure in Malaysia and Nigeria
title_sort determinants of sme’s failure in malaysia and nigeria
granting_institution Universiti Utara Malaysia
granting_department Othman Yeop Abdullah Graduate School of Business
publishDate 2018
url https://etd.uum.edu.my/7743/1/s900709_01.pdf
https://etd.uum.edu.my/7743/2/s900709_02.pdf
_version_ 1747828258090516480
spelling my-uum-etd.77432021-08-11T01:38:41Z Determinants of SME’s failure in Malaysia and Nigeria 2018 Ma’aji, Muhammad Muhammad Abdullah, Nur Adiana Hiau Khaw, Lee Hwei Othman Yeop Abdullah Graduate School of Business Othman Yeop Abdullah Graduate School of Business HG Finance Small and medium-sized enterprises (SMEs) play an important role toward economic development worldwide. Predicting bankruptcy among SMEs can have a significant impact on the economy as an effective early warning signal. This study develops bankruptcy prediction models for Malaysian and Nigerian SMEs by combining financial, non-financial, corporate governance and macroeconomic variables using the logistic regression and artificial neural network (ANN) methods. The accuracy rates obtained by those two methods were then compared. In developing the estimated model, 1,556 (632) SMEs from the manufacturing sector in Malaysia (Nigeria) are selected. Three sub-samples are created representing 3-years, 2-years and 1-year prior to bankruptcy, with total observations of 666 (344), 470 (172) and 420 (116) respectively. Each sub-sample comprises 50 percent nonbankrupt and 50 percent bankruptcy firms, from years 2000 to 2014. The findings show that four of the financial variables, namely, lower profitability, high leverage, insufficient liquidity and high operating expenses are associated with bankruptcy among SMEs in Malaysia and Nigeria. As for the non-financial variables, the results indicate that young SMEs and those located in less industrialised states are more likely to go bankrupt. In addition, the corporate governance variables, such as number of directors, independent director, managing director duality, controlling shareholder, ethnicity and gender of managing director are found significant. Moreover, high unemployment rate is associated with bankruptcy among SMEs in Malaysia and Nigeria, while high inflation rate as well as lending rate are associated with SMEs bankruptcy only in Nigeria. The result shows that the ANN model leads to a higher predictive accuracy rate compared to the logistic regression model for Malaysia and Nigeria. The study reveals that SMEs should increase the number of independent directors, discourage CEO duality and reduce ownership concentration. Financial institutions could use this study as a reference model to manage credit risk of SMEs while the government agencies may use it to improve their existing policies. 2018 Thesis https://etd.uum.edu.my/7743/ https://etd.uum.edu.my/7743/1/s900709_01.pdf text eng public https://etd.uum.edu.my/7743/2/s900709_02.pdf text eng public https://sierra.uum.edu.my/record=b1698911~S1 Ph.D. doctoral Universiti Utara Malaysia Abdullah, N., Ahmad, A., Ahmad, H., & Md. Rus, R. (2008). 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