Determinants of capital structure : evidence from Malaysian SMEs

This paper aims to investigate the determinants of capital structure of small and medium
enterprises (SMEs) from manufacturing sector in Malaysia. Specifically, this study wants to examine the effect of asset structure, profitability, quality of information, size
and age on leverage. Multivariate regression analysis and Pearson’s correlation analysis
were used to investigate the most significant factors that affect the capital structure
choice of Malaysian SMEs during the year 2013. In the first model, both results find a
negative and significant relationship for profitability and size with leverage while asset
structure, quality of information and age show negative but not significant relationship
with leverage. However, using a second model, asset structure shows a significant positive relationship with leverage, while quality of information shows significant negative relationship with leverage. The analysis indicates that firstly; the results are
consistent with some capital structure theories such as trade-off theory and pecking order
theory. Secondly, quality of information, asset structure, profitability and size are
important factors that affect capital structure choice of Malaysian SMEs.