Yao Yuan, S. M. Ferdous Azam, Jacquline Tham


This research emphasises the conceptual underpinning of capital structure decisions and firm performance among Small and Medium Size Enterprises (SMEs) in Malaysia. The capital structure of a firm can be partitioned into two major groups, particularly debt and equity financing. Equity financing arises when a firm offers some of its ownership rights to raise capital for further growth, expansion and investment activities. However, the definition of capital structure is the proportion of debt and equity to the total capital carried by a firm. The study found that the relationship between growth opportunity and firm performance is positively related to firm performance. It explains most of the SMEs whom with better growth opportunities will have greater access to finance and more sources in selecting financing options compared to low growth firms in Malaysia. The finding also justifies that the oldest of the firm age, the higher creditworthiness and better historical records that provide a more considerable reputation and trust to financial institutions. In investigating the relationship between asset tangibility and firm performance among SME in Malaysia, this study proves a positive relationship between the asset tangibility and firm performance. Finally, the number of literature on SMEs capital structure in Malaysia is relatively limited. Therefore, the recommendation for future research to study on other determinants of capital structure decisions which did not utilise in this study, for example, liquidity, non- debt tax shield and financial flexibility to examine the impact of capital structure decisions of SMEs.


JEL: L10, L20, P12, D24


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