Abd Halim Ahmad

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 higher gearing and lower profitability are associated with higher failure risk. In addition, the incorporation of the companys age significantly improves the models 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.

Modelling Small Business Failures 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 a failure prediction model for SMEs in the manufacturing sector. By using 132 Malaysian SMEs during the period 2000 to 2010, the results show that higher gearing and lower profitability are associated with higher failure risk. Furthermore, the incorporation of firm’s age significantly improves the model’s predictive accuracy. Receiver Operating Characteristics curve demonstrates that the models possess better prediction ability than a random model. However, a model which includes financial and non-financial variables show superior performance. This model could detect failures as early as four years prior to the event. Overall, the accuracy rate that the model could correctly predict failures ranges from 75 percent to 89 percent.This model could be used as a refined tool to avoid possible adverse situations among the SMEs. A better credit decision making could take place that could potentially reduce non-performing loans.

Debt and firm value in Malaysia: A panel threshold regression analysis

There have been number of studies discussing the optimal level of capital structure since the seminal work of Modigliani and Miller (1958). In this study, we examine whether an optimal level of debt exist at which a firm could maximize its value. An advanced panel threshold regression model by Hansen (1999) is employed to test the effect of debt ratio on the firm value among Malaysian listed firms from 2005 to 2009. The findings from this study show that additional debt beyond the threshold level does not add to a firm value.

Credit and the housing boom in Malaysa: a come back?

This article investigates the existence of credit and housing booms in the Malaysian economy, with high levels of household indebtedness. The results reveal that both the credit boom and the housing boom exist and imply the fragility of the financial sector of the economy.Â

Market reactions to financial distress announcements: Do political connections matter?

Abstract We examined market reactions to the financial distress announcements of listed firms in Malaysia. We investigated whether the market differentiates between the politically connected and non-politically connected vis-a-vis the outcomes at the time of the announcements. There is evidence of differing reactions to announcements by politically connected and non-connected firms. Investors react more negatively to the non-politically connected firms as compared to the politically connected ones. In addition, in the event of emergence from financial distress, the losses of politically connected firms were lower than for the non-politically connected firms.