Understanding Owner-Managers’ Preferences Towards Different Sources of Financing: The Case of Successful SMEs in Malaysia

Abstract

The increasing importance of SMEs sector in many countries, especially in developing economies, motivates a better understanding on the behavior of financing practices among SMEs. The accessibility of financing which is one of the crucial contributing factors to the SMEs success can be enhanced by developing a supportive financial framework to improve SMEs' sustainability as well as their overall contributions to the economy. This research investigates the financial practices among successful SMEs in Malaysia based on the list of Enterprise 50 award winners from 1998 to 2010, by focusing on the ownermanagers' level of preferences towards various sources of financing. This research also explores the relationship between owner-managers' characteristics and their level of financing preferences. Electronic surveys among 444 SMEs were conducted, yielding a response rate of 29.6%. Results show that retained earnings and banking institutions are the most preferred sources of internal and external financing among Malaysian SMEs owner-managers. Furthermore, managers' ownership status, highest level of education and level of experience are found to have a statistically significant association with their level of financing preferences towards different sources of financing. These findings would provide valuable information to the related policy makers in developing the supportive financial framework for SME development