Empirical analysis on the relationship between debt level and SMEs profitability

The present study examines the relationship between debt level and profitability of SMEs, taking into consideration major characteristics of the enterprises such as size and age. A total of 184 Malaysian Small and Medium-Sized Enterprises (SMEs) registered under Companies Commission of Malaysia (CCM) were examined. The study employed regression method to estimate the impact of debt level on profitability (measured by Return on Asset or ROA). The empirical findings indicate that high debt level causes significant negative impact on ROA. The study suggests that the SMEs should give due consideration in optimizing their capital structure.