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Modeling corporate failures among Malaysian small and medium-sized enterprises


Abdullah, Nur Adiana Hiau and Md. Rus, Rohani and Zainudin, Nasruddin and Ahmad, Abd Halim @ Hamilton (2014) Modeling corporate failures among Malaysian small and medium-sized enterprises. Project Report. Universiti Utara Malaysia, Sintok. (Unpublished)

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Abstract

Small and medium-sized enterprises (SMEs), which constitute the bulk of business establishments, have been recognised as important drivers of the economy, contributing mainly to the growth of domestic industries and also as providers of employment. Despite being considered as the backbone of the economy, SMEs have been beset with problems which cause them to be in a financially distressed position.Hence, this study attempts to formulate a model to predict financially distressed situation among SMEs in Malaysia. By applying multiple discriminant analysis (MDA) and logistic regression techniques, the financial data of distressed and non-distressed manufacturing SMEs are analysed at four different points of time prior to financially distressed situation. For both MDA and logit models, age and debt ratio are two significant variables that could predict financially distressed SMEs consistently throughout the 4-year, 3-year, 2-year and 1-year prior to distress status.The 4-year prior to distress model, in addition to age and debt ratio, size and sales to total assets were found to be significant as well.Three years before the distressed situation, there are more variables that are significant.In addition to age and debt ratio, other variables include size, short-term to total liabilities, current ratio and EBIT to total assets. For the 2-year prior to distress situation, the number of predictors reduced to four. Besides age and debt ratio, size and EBIT to total assets were also found to be significant predictors under logit model.As companies approach distress situation, less but important variables are identified to be the predictors of distress. For the 1-year prior to distress model, age and debt ratio seemed to be the significant variables in predicting financially distressed situation. For the MDA technique, the 4-year prior to distress model revealed that size and EBIT to total assets, in addition to age and debt ratio, were found to be significant in discriminating between healthy and distressed companies. In the 3-year prior to distress model, more variables emerged to be significant predictors.Besides age and debt ratio, the variables comprise short-term liabilities to total liabilities, current ratio, EBIT to total assets and size.From the results of the two techniques, age and debt ratio are the two variables that are consistently significant in the model.The results of the descriptive analysis on the variables support the findings where age and debt were found to have a significant mean difference between the healthy and distressed companies for all the 4-year, 3-year, 2-year and 1-year prior to distress situation.

Item Type: Monograph (Project Report)
Subjects: H Social Sciences > HB Economic Theory
Divisions: School of Economics, Finance & Banking
Depositing User: Prof. Dr. Nur Adiana Hiau Abdullah
Date Deposited: 17 Dec 2014 01:47
Last Modified: 12 Apr 2016 06:57
URI: http://repo.uum.edu.my/id/eprint/12903

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