Hiau Abdullah, Nur Adiana and M. Ma'aji, Muhammad and Hwei Khaw, Karren Lee
(2016)
The Value Of Governance Variables In
Predicting Financial Distress Among Small
And Medium-Sized Enterprises In Malaysia.
Asian Academy of Management Journal of Accounting and Finance, 12 (1).
pp. 1-15.
ISSN 1823-4992
Abstract
Predicting financial distress among SMEs can have a significant impact on the economy
as it serves as an effective early warning signal. The study develops distress prediction
models combining financial, non-financial and governance particularly ownership and
board structures, on the likelihood of financial distress by using the logit model. The final
sample for the estimation model consists of 172 companies with 50% non-failed cases
and 50% failed cases for the period from 2000 to 2012. The prediction models perform
relatively well especially Model 3 that incorporates governance, financial and nonfinancial variables, with an overall accuracy rate of 93.6% and 91.2% in the estimated
sample and holdout sample respectively. This evidence shows that the models serve as
effective early warning signals which are beneficial for monitoring and evaluation
purposes. Controlling shareholder, number of directors and gender of managing director
are found to be significant predictors of financially distressed SMEs.
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