The determinants of short and long term debt in Malaysian SMEs

The success of Small and Medium Enterprises (SMEs) industries, depending on the decisions relating to the capital structure, whether to choose a debt and/or equity. This paper analyses the capital structure focusing on the SME food and beverage services in Malaysia. To determine the capital structure of selected SMEs, regression analysis was performed with a focus on the financial performance of 80 companies in the food and beverage industry in Malaysia from the period 2009-2015. In this paper, the ratio of long-term debt and short-term that is used to represent the capital structure as the dependent variable. Meanwhile, the size, profitability, growth, liquidity, asset tangibility, and age were used as independent variables. The results have confirmed that the SME business is in line with the pecking order theory but not in line
with the Trade-off Theory. This study found that growth, liquidity, the tangibility of assets, and the age of the firm are key determinants of capital structure for financing SMEs either short term or long term. Growth is negatively related to the short-term debts ratio. Meanwhile, liquidity is negatively related to the short-term debts ratio. In addition, this paper found that tangibility of assets associated with negative short-term and age was negatively on long-term debts ratio. This study also found that growth and liquidity have a positively related to long-term debts ratio. However, the size and profitability of firm do not affect the capital structure of SMEs.