Size Effect and Insolvency Profiles among the SMEs: An Empirical Investigation

This purpose of this study is to examine the effect of size on insolvency of small medium enterprises (SME) in Malaysia. The conceptual framework is designed using the recommended measures, variables, concepts and models. A total sample of 229 businesses which consisted of small (57), medium (111) and large (61) SMEs. The data were obtained from the Registrar of Companies. Percentile method (25, 50, 75) was adopted to categorize the size of SMEs using their total assets values. The results indicate that size effect was significant only on profitability measures. There were no significant differences among the small, medium and large SMEs with regard to insolvency scores. In general, about 55% of the large SMEs fell under the bankruptcy category, as compared to 39% of the small SMEs and about 47% of the medium SMEs. Large SMEs faced greater financial risk and thus, faced greater risk for insolvency.