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International Business Management
Year: 2017  |  Volume: 11  |  Issue: 2  |  Page No.: 299 - 307

Determinant of Technical Efficiency of Small and Medium Enterprises in Malaysian Manufacturing Firms

Rahmah Ismail and Syahida Zainal Abidin    

Abstract: Technical efficiency is the ability of an enterprise to produce the maximum output using a set of input or minimizing the use of input in producing a certain level of output. When an enterprise is operating at its most efficient, operating costs can be reduced and profits can be increased. This article attempts to analyses the level of technical efficiency of Small and Medium Enterprises (SMEs) in the Malaysian manufacturing firms and identifies the determinants of their efficiency. The analysis uses the data obtained from the Department of Statistics of Malaysia 2009 Manufacturing Survey, which covers 4661 SMEs. In the analysis, SMEs will be divided into three categories, namely, the micro-Sized Enterprises (CSEs) the Small-Sized Enterprises (SSEs) and the Medium-Sized Enterprises (MSEs). To achieve the objectives of this study, we estimate the frontier production model to obtain technical efficiency scores simultaneously with technical inefficiency determinants model. In this study, we adopt the translog production model in obtaining the technical efficiency scores and the linear technical inefficiency model to determine factors affecting the firms’ inefficiency level.

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