The role of owner-manager, firm characteristics and strategies on micro and small enterprise performance in Malaysia

Abstract

In order to transform Malaysia from a middle income to developed nation, micro, small and medium enterprises (MSMEs) are seen as a key enabler to this transformation. As a result, the government has invested a lot of effort in numerous development programs that enhance financial accessibility and human capital development in order to achieve the transformation objective. Bank Negara Malaysia gave a mandate to various development financial institutions and selected financial institutions under the microfinance scheme, to provide loans and advisory services to MSMEs, in order to solve some of the challenges that they faced. These include; financial accessibility and limited business skills among MSME owner managers. It is upon this background that this study contributes to the understanding of the factors that determine MSME performance, by examining the role of loan amount and advisory services together with firm characteristics, owner manager characteristic and other business strategies on MSME performance. This study used original data from 381 MSMEs which are clients of Ehsan developmental financial institution in order to run a couple of inferential statistics. These included Mann-Whitney, Kruskal-Wallis test and multiple regression analysis. In order to reduce the variable that gave the best prediction of MSME performance, categorical regression analysis (CATREG) was utilized using lasso regularization. The results in the study showed strong contribution of loan amount and bookkeeping to enterprise performance. Similarly, firm size in terms of number of employee, gender, assets and number of customer had statistically significant results. The study contributes to theoretical and knowledge bases, as well as empirical justification on variables in Storey’s framework. The results also had a bearing on different stakeholders, such as owner-managers, financial Institutions (FIs) and policy makers. There is a need for policy makers to review the information and advisory service programs as well as the method of delivery due to low levels of implementation. Training, planning and insurance were other aspects that all stake holders had to look into in order to improve the current performance. The findings of the study also added to the existing empirical knowledge by supporting resource based view theory assumptions, on the influence of both internal and external resources on firm performance. Similarly, information and advisory services and loan amount (external credit) variables from Storey’s framework were examined in the context of Malaysia, and the results were robust in the overall regression. However, the study is limited to a single case study and survey, using cross sectional data in the service sector.