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Modelling small and medium-sized enterprises' failure in Malaysia

Small and medium-sized enterprises (SMEs) are acknowledged as significant contributors to development and growth in the economy. Since failure among SMEs is common, this study intends to build an accurate model that could predict SME failure.An analysis on 132 companies in 2000 to 2010 shows that hi...

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Main Authors: Abdullah, Nur Adiana Hiau, Ahmad, Abd Halim @ Hamilton, Zainudin, Nasruddin, Md Rus, Rohani
Format: Article
Published: Inderscience Publishers 2016
Subjects:
HB Economic Theory
Online Access:http://repo.uum.edu.my/18245/
http://doi.org/10.1504/IJESB.2016.075686
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spelling my.uum.repo.182452020-11-04T01:57:20Z http://repo.uum.edu.my/18245/ Modelling small and medium-sized enterprises' failure in Malaysia Abdullah, Nur Adiana Hiau Ahmad, Abd Halim @ Hamilton Zainudin, Nasruddin Md Rus, Rohani HB Economic Theory Small and medium-sized enterprises (SMEs) are acknowledged as significant contributors to development and growth in the economy. Since failure among SMEs is common, this study intends to build an accurate model that could predict SME failure.An analysis on 132 companies in 2000 to 2010 shows that higher gearing and lower profitability are associated with higher failure risk.In addition, the incorporation of the company's age significantly improves the model's predictive accuracy.Our result indicates that young SMEs rely heavily on debt, which leads them into distressed situations.To validate the predictive accuracy of the model, the area under the receiver operating characteristic (ROC) curve is utilised, suggesting that the inclusion of the non-financial variable significantly improves the model.The overall prediction accuracy rate ranges from 75% to 89% for the model developed with non-financial variables when applied to the one-year, two-year, three-year and four-year prior-to-default holdout samples. Inderscience Publishers 2016 Article PeerReviewed Abdullah, Nur Adiana Hiau and Ahmad, Abd Halim @ Hamilton and Zainudin, Nasruddin and Md Rus, Rohani (2016) Modelling small and medium-sized enterprises' failure in Malaysia. International Journal of Entrepreneurship and Small Business, 28 (1). p. 101. ISSN 1476-1297 http://doi.org/10.1504/IJESB.2016.075686 doi:10.1504/IJESB.2016.075686
institution Universiti Utara Malaysia
building UUM Library
collection Institutional Repository
continent Asia
country Malaysia
content_provider Universiti Utara Malaysia
content_source UUM Institutional Repository
url_provider http://repo.uum.edu.my/
topic HB Economic Theory
spellingShingle HB Economic Theory
Abdullah, Nur Adiana Hiau
Ahmad, Abd Halim @ Hamilton
Zainudin, Nasruddin
Md Rus, Rohani
Modelling small and medium-sized enterprises' failure in Malaysia
description Small and medium-sized enterprises (SMEs) are acknowledged as significant contributors to development and growth in the economy. Since failure among SMEs is common, this study intends to build an accurate model that could predict SME failure.An analysis on 132 companies in 2000 to 2010 shows that higher gearing and lower profitability are associated with higher failure risk.In addition, the incorporation of the company's age significantly improves the model's predictive accuracy.Our result indicates that young SMEs rely heavily on debt, which leads them into distressed situations.To validate the predictive accuracy of the model, the area under the receiver operating characteristic (ROC) curve is utilised, suggesting that the inclusion of the non-financial variable significantly improves the model.The overall prediction accuracy rate ranges from 75% to 89% for the model developed with non-financial variables when applied to the one-year, two-year, three-year and four-year prior-to-default holdout samples.
format Article
author Abdullah, Nur Adiana Hiau
Ahmad, Abd Halim @ Hamilton
Zainudin, Nasruddin
Md Rus, Rohani
author_facet Abdullah, Nur Adiana Hiau
Ahmad, Abd Halim @ Hamilton
Zainudin, Nasruddin
Md Rus, Rohani
author_sort Abdullah, Nur Adiana Hiau
title Modelling small and medium-sized enterprises' failure in Malaysia
title_short Modelling small and medium-sized enterprises' failure in Malaysia
title_full Modelling small and medium-sized enterprises' failure in Malaysia
title_fullStr Modelling small and medium-sized enterprises' failure in Malaysia
title_full_unstemmed Modelling small and medium-sized enterprises' failure in Malaysia
title_sort modelling small and medium-sized enterprises' failure in malaysia
publisher Inderscience Publishers
publishDate 2016
url http://repo.uum.edu.my/18245/
http://doi.org/10.1504/IJESB.2016.075686
_version_ 1684655788988039168
score 13.211869

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