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Debt financing decisions of SMEs in emerging markets: empirical evidence from Malaysia

Shaista Wasiuzzaman (Faculty of Management, Multimedia University – Cyberjaya Campus, Cyberjaya, Malaysia)
Nabila Nurdin (Faculty of Management, Multimedia University – Cyberjaya Campus, Cyberjaya, Malaysia)

International Journal of Bank Marketing

ISSN: 0265-2323

Article publication date: 30 August 2018

Issue publication date: 13 February 2019

Abstract

Purpose

The purpose of this paper is to examine the various factors that influence a small and medium enterprise’s (SME) decision to apply for bank loans.

Design/methodology/approach

Data from survey responses of 145 SMEs from Selangor and the Federal Territory of Kuala Lumpur are used for this purpose. Exploratory factor analysis, logistic regression and SEM-PLS are used to analyze the data.

Findings

The findings from the survey show that an SME’s financial performance, its access to finance and its legal form play a significant positive role in its decision to apply for debt financing. Private limited SMEs that perform well and are able to access to various financing options are more likely to apply for financing. However, there is also evidence of a significant negative influence of credit history on the decision to apply for financing, as SMEs with a poor credit history are more likely to apply for financing. The age of an SME has weak influence while its size is found to be insignificant in influencing its decision to apply for financing.

Originality/value

The results imply the role of financial market imperfections such as adverse selection and information asymmetry in defining the SME’s demand for debt financing. The study contributes to a deeper understanding of the debt financing decisions of SMEs.

Keywords

Acknowledgements

This research is funded by the Ministry of Higher Education Malaysia, under the Fundamental Research Grant Scheme (FRGS) (Grant No. FRGS/1/2014/SS05/MMU/02/4). The authors would like to thank the anonymous reviewer and the editor for their constructive feedback which greatly benefited the authors in improving the manuscript.

Citation

Wasiuzzaman, S. and Nurdin, N. (2019), "Debt financing decisions of SMEs in emerging markets: empirical evidence from Malaysia", International Journal of Bank Marketing, Vol. 37 No. 1, pp. 258-277. https://doi.org/10.1108/IJBM-12-2017-0263

Publisher

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Emerald Publishing Limited

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