THE COMPARISON OF CAPITAL STRUCTURE DETERMINANTS BETWEEN SMALL AND MEDIUM ENTERPRISES (SMEs) AND LARGE FIRMS IN MALAYSIA

The objective of the paper is to analyze the determinants of capital structure of firms, by comparing Small and Medium Enterprises (SMEs) and large firms. SMEs in Malaysia play a significant role in the national economy. However, contribution of Malaysian SMEs to economy is not up to the mark to selected benchmarking countries such as South Korea and Japan. One of major reasons is financial constraint. Given that the resource of financial assistance from government is limited, concentration has to be given to potential firms which are listed as Enterprise 50 (E50). E50 is a prestigious awards program to recognize the achievements of SMEs. Panel data analysis has been used to test the determinants of capital structure, indicated by the leverage ratio of the firms. The independent variables are asset tangibility, profitability, non-debt tax shield, liquidity, age and size. Evaluation is based on financial data of 285 firms consisting of 91 SMEs and 194 large firms for a period of 2004 till 2011. Trade Off and Pecking Order theory are discussed. The result shows that capital structure of SMEs and large firms are almost similar except in term of growth, liquidity and size. Growth is important for large firms. Liquidity is the critical factor for SMEs in determining short term debt, and size does matter to SMEs