1 
 
 
CHAPTER 1  
INTRODUCTION 
 
 
This study examines the effect of financial management practices on the 
financial performance of equity-based crowdfunding (ECF) recipient firms in 
Malaysia. This study also investigates the social networks and the ECF platforms’ 
provider affiliations to grasp the crowdfunding concept. As the entrepreneurial 
landscape becomes more dynamic, the entrepreneurs face more significant challenges. 
Additionally, this study investigates the adoption of business intelligence (BI) as a 
mediator between financial management practices, financial analysis and financial 
planning towards the firm performance. Thus, Chapter 1 starts by explaining the 
research background, issues and problem statement, and the study's rationale. This 
chapter provides the study's purpose, the study's objectives, research questions, 
limitations, and the significance of the study in experimental research. It concludes 
with the operational definition of key terms guiding the study. 
 
1.1 RESEARCH BACKGROUND 
The new Malaysian Government has re-established the Ministry of 
Entrepreneur Development to achieve its mission to accelerate the sustainability and 
equity of small and medium enterprises (SMEs). SMEs are known as economic 
catalysts, contributing 38.9% to Malaysia's gross domestic product (GDP) in 2019 
(DOSH, 2020). To put Malaysia on par with economic leaders such as Japan, Korea,
 2 
 
 
and Taiwan, SMEs must be the country's top plan in the future. SMEs in these 
countries are the most significant contributors to the economy compared to the existing 
large companies. Half of the income of these countries come from SMEs. 
Therefore, Malaysia is taking various initiatives, including developing 
entrepreneurship programs to help the well-being of SMEs in all sectors. In 2017 alone, 
Malaysia has organized a total of 168 SME development programs. These programs 
have successfully assisted nearly 600,000 SMEs from various sectors. With continued 
government support, this will help place SMEs in the global value chain, especially in 
the era of digitalization and the Industrial Revolution 4.0 (Jayakrishnan et al., 2018; 
Butticè & Vismara, 2021). According to Megginson (2004), the development of global 
technologies, industries, and markets inspires SMEs to be more innovative. As a result, 
they create more opportunities that can create jobs and indirectly eradicate poverty. 
The Government and its agencies have and will have to ensure that SMEs in 
Malaysia continue to grow and develop in line with the current situation. The assistance 
provided includes financial, creating various incubator programs as well as young 
entrepreneur schemes. However, such efforts need to be carefully examined and 
observed to achieve the goal of developing SMEs (Abraham & Schmukler, 2017). 
Recently, the Government has introduced equity-based crowdfunding (ECF) to 
help address the financial problems faced by SMEs (Securities Commission Malaysia, 
2016). ECF was first introduced in 2015 by the Government through its agency, the 
Securities Commission Malaysia, and it is growing (Kourabas & Ramsay, 2018). ECF 
is a method of raising capital from online platforms as the manisfestation of the 
financial technology (fintech) innovation (Coakley & Lazos, 2021). The ECF platform 
acts as intermediary connecting companies (issuers) and investors. 
 3 
 
 
In 2017, the Securities Commission Malaysia reported that the ECF was able to 
help SMEs raise finance for their operations. The report has stated that the ECF 
platform has managed to raise MYR32.74 million in investments from 37 campaigns. 
The investment involved more than 800 investors. 
The following year, the Securities Commission Malaysia report showed that the 
number of successful campaigns declined compared to the previous year to 23 
campaigns. However, the total investment increased by MYR15 million (Fong, 2019). 
In 2019, the Securities Commission Malaysia statistics showed that a total of 77 issuers 
had successfully benefited from the ECF. A total of 80 campaigns successfully raised 
investment funds worth MYR 73.74 million (Securities Commission Malaysia, 2019). 
This indirectly gives the view that ECF has the potential as a new alternative to finance 
SMEs in Malaysia.  
However, in Malaysia, the involvement of SMEs to obtain ECF is still low. 
Therefore, this study investigates the performance of ECF-funded firms that have 
successfully received ECF from 2016 to 2019. The success of SMEs to obtain ECF 
depends on the investors who participate in the campaigns on the platform. However, 
several factors influence investors to invest in a firm. Among those factors are available 
financial information (Chen et al., 2016; Di Pietro et al., 2020; Shahzad et al., 2019), 
patents (Hsu & Ziedonis, 2013), governance (Sanders & Boivie, 2004), product 
certification (Ahlers et al., 2015; Bapna et al., 2017), business models (Ahlers et al., 
2015; Lukkarinen et al., 2016), marketing strengths (Bae et al., 2017), words used in 
campaigns (Mollick, 2014), press releases (Steigenberger & Wilhelm, 2018), third-
party affiliations (Plummer et al., 2016), founder networks (Liao et al., 2015), issuer-
platform networks (Helmer, 2014), expert participation (Kim & Viswanathan, 2018), 
 4 
 
 
social media (Dessalles, 2014), and the background of the founding team (Ahlers et al., 
2015; Bernstein et al., 2017; Lim & Busenitz, 2020).   
 
1.2 PROBLEM STATEMENT 
SMEs is a significant contributor to gross domestic product (GDP) in most 
countries, including Malaysia. These SMEs can increase the country's economic growth 
by creating new jobs, increasing decent community income and wealth, and improving 
social networks (Ahmad & Xavier, 2012; Henderson, 2002). Although these enterprises 
have great potential to generate high profits, at the same time, they reveal a relatively 
low survival rate. Thus, it is difficult for them to surpass the existing traditional market 
and the global market. This explains the reason why most of them face many problems 
and fail (Dhawan, 2001). 
The main problems plaguing SMEs are lack of financial resources and financial 
management practices (Ebashi et al., 1997). SMEs cannot be successful without 
sufficient funding and adequate management skills (Everett & Watson, 1998). Large 
companies also face a shortage of operating capital, but the effects are even worse when 
involving SMEs and new firms (Capocchi, 2019). The financial problems of start-ups 
are the worst because they do not have the financial history, business records and 
previous assets to serve as collateral to support bank loan applications (Burke & 
Hanley, 2006). Banks, as well as traditional financial institutions, are centered on 
maximizing profits. Therefore, small firms and start-ups are not their choices (Chapra, 
2011). SMEs and start-ups comparable to already growing companies also have the 
same problem (Archibugi et al., 2013; Storey & Greene, 2010).  
Vaznyte and Andries (2019) argue that start-ups need substantial funding 
because of their nature being high-growth, innovative, and too risky. Nonetheless, a 
 5 
 
 
large number of start-ups typically fund their operations from savings, credit cards 
(Aydın, 2016), family and friends (Conti et al., 2010), bootstrapping (Ye, 2017) and 
grants (Srhoj & Walde, 2020; Wang et al., 2017) which are inadequate. However, when 
these funds are depleted, the company will again face a financial crisis, affecting the 
company's survival and performance. The emergence of crowdfunding (CF) is seen as 
a savior for these SMEs and start-ups. CF also can grow (Lee et al., 2015) and be a 
catalyst for economic growth and job creation (OECD, 2013). More than that, CF is 
one of the "fast -growing markets" that promotes shared value (Baumgardner et al., 
2017; Desa & Basu, 2013). 
The advent of CF reduces the critical funding gap of small firms, especially 
start-ups (Lin, 2017; Wasiuzzaman & Nurdin, 2019). The CF mechanism allows for 
interaction between firms, platforms, and investors worldwide using social media 
applications such as Facebook, Instagram, WhatsApp, Twitter, and email (Paschen, 
2017). Some interpret it as an innovation in running a business online (Robson et al., 
2016) and innovation in entrepreneurial financing (Bellavitis et al., 2017).  
As mentioned earlier, the ECF in Malaysia has been introduced since 2015. It 
aims to help SMEs overcome the financial problems they face. Judging from the 
statistics reported by the Securities Commission Malaysia, a total of MYR32.74 million 
(2017), MYR47.74 (2018) and MYR73.74 (2019) million have been successfully 
recorded. In addition, in the 2020 report, ECF investments above MYR199 million were 
recorded. A total of 150 issuers have published 159 campaigns (Securities Commission 
Malaysia, 2020). This indicates that ECF has the potential as a new alternative to 
finance SMEs in Malaysia. 
Lack of funds is a significant problem for firms, especially SMEs, and financial 
management problems are also a major cause of business failure. Lack of knowledge 
 6 
 
 
of financial management among founders is why they do not get involved in managing 
financial matters. However, it is worse if they choose to participate (Atik, 2010). In 
uncertain business conditions, inefficiency in financial management will only put the 
firm at risk (Lakew & Rao, 2013) and affect the firm's sustainability (Agyei-Mensah, 
2010). Thus, incorrect financial decisions tend to affect the liquidity and profitability 
of a firm's overall performance. In most cases, this will then result in insolvency 
(Mackevičius & Sneidere, 2010). 
To reduce risk and ensure that the company's financial position is well-
monitored, the company needs to adopt effective and efficient financial management 
strategies. Recently, the Government of Malaysia has imposed strict conditions on loan 
applications and financing of micro, small, medium enterprises (MSMEs) by examining 
the company's financial reports. Often, these firms are associated with a lack of 
financial management practices. This indicates a high-risk investment in these types of 
businesses (Azman et al., 2020).  
Financial management practices are used to enable practical evaluation of 
company performance. Many studies have been conducted to examine the impact of 
financial management practices and SME performance. Financial management 
practices have been recognized in both developed countries such as the US, Sweden, 
and Australia (Baker et al., 2011; Dahmen & Rodriguez, 2014; McMahon, 2001), and 
developing countries such as Vietnam, Nigeria, Turkey and Ethiopia (Abanis et al., 
2013; Kitonga, 2013; Karadag, 2015; Waweru & Ngugi, 2014). 
Financial management is a crucial management tool, and understanding it is 
essential. It allows the finance manager to keep track of the company's current financial 
situation. It can also address a company's future financial requirements (World Bank, 
2014; Musah et al., 2018). As a result, competent financial management can help 
 7 
 
 
businesses avoid failure and insolvency (Harash et al., 2014; Waweru & Ngugi, 2014; 
Kiiru et al., 2019). 
SMEs in Malaysia do not practice proper financial management practices (Harif 
et al., 2010). Often, the financial management practiced by Malaysian SMEs is limited 
to working capital, financial accounting, and financial planning and control. On the 
other hand, financial analysis and reporting, and management accounting are not 
emphasized. More than that, Di Pietro, Grilli and Masciarelli (2020) argue that under 
the ECF, firms that display financial statements and previous achievements can reduce 
ambiguity and asymmetric information among the public. Quality financial reporting 
tends to increase investor confidence and influence them in making investment 
decisions. Their results are significant because they will affect the campaign's outcome 
(Chen et al., 2016; Shahzad et al., 2019).  
ECF ecosystems involve networks and platform that act as an intermediary that 
briges the issuers and funders. Research by Tamyez, Azizan, Ismail, and Ali (2018) 
argues that previous studies on SMEs in Malaysia have mainly studied entrepreneurship 
itself but less examination on the influence of efficiency and networking. Whereas, 
networking is one of the success factors of business growth (Anderson et al., 2010; Jack 
et al., 2010) because it has the privilege of accessing customers and external resources 
(Martinez & Aldrich, 2011).  
The emergence of the ECF platform provides an excellent opportunity for start-
up firms to continue to grow (Salomon, 2016). The ECF also symbolizes the decline of 
venture capitals (VCs) and private equities (PEs) to finance SMEs, especially start-up 
firms, due to their high risk. They only choose to invest in the existing growing firms 
which already have the product and are already stable. According to Haas, Blohm and 
Leimeister (2014), intermediary value propositions differ depending on the 
 8 
 
 
crowdfunding model (i.e., hedonism as a reward, altruism as a contribution, and profit). 
Therefore, it is reasonable to investigate the potential of crowdfunding platforms as 
intermediaries due to research on crowdfunding platforms is still lacking. 
Thus, this study intends to investigate if these factors have an impact on the 
ECF-funded firm in Malaysia, specifically, their impact on the future development of 
the firm. In addition, the problems of the ventures become more challenging due to the 
fast-changing in technology. This study therefore also investigates the interference of 
technology, namely, business intelligence in ECF firms. Further funding could be the 
catalyst of these firms’ continuation (Strausz, 2017). Since funding retrieved from 
online platforms is merely a short-term strategy, the ventures need to seek for other 
funding sources for expansion purposes (Brown et al., 2018). 
Inability to keep up with the technological advancement and the costs of having 
technology in the ventures significantly affect the firm performance (Azudin & Mansor, 
2018). The present study thus further aims to examine the influence of business 
intelligence in enhancing these firms' performance. Nowadays, technology plays an 
essential role in keeping the business on its right track (Stodder, 2013). Big data, 
artificial intelligence, fintech, bitcoins, and blockchain are those financial technologies 
that disrupt current businesses operation (Jiang et al., 2011). 
If more SMEs use ECF, the effectiveness of ECF can be determined. Based on 
this claim, this study takes the initiative to investigate the firm performance from the 
experiences of ECF-funded firms from 2016 to 2019. This study is critical because it 
provides knowledge on SMEs that adapt financial innovations compared to SMEs 
before the emergence of CFs, those that focus on traditional financial systems and 
prevalent financing as already described. 
 9 
 
 
1.3 GAPS IN THE LITERATURE 
Most previous studies examined successful crowdfunding campaigns (Signori 
& Vismara, 2016, 2018). However, a few studies examined the post-event of 
crowdfunding. A study by Valanciene and Jegeleviciute (2013) used SWOT analysis 
to evaluate the impact of crowdfunding. The analysis merely discloses the uniqueness 
and ambiguity of crowdfunding and public anxiety as its drawbacks. Further, the effect 
of the post-campaign towards the additional external funding has been investigated 
(Kuppuswamy & Roth, 2016). In some research, the finding shows that the amount 
raised during the crowdfunding campaign significantly influences the possibility of 
obtaining additional funding via external sources, such as business angel (BA) and 
venture capital (VC) (Fili, 2014). 
The crowdfunding 'proof of concept' attracts potential investors to participate in 
the next campaign. The study also shows that after the campaign successfully raises 
$75,000, the marginal effect of increasing additional funding decreases (Kuppuswamy 
& Roth, 2016). Meanwhile, Skirnevskiy, Bendig and Brettel (2017) emphasize 
enhancing the creator-platform internal network for future campaign success. Recent 
research on post crowdfunding event by Fan-Osuala, Zantedeschi and Jank (2018) 
examined the relationship between the creator and the investors. The outcome shows a 
positive relationship as the success of the previous campaign will help the creator's 
future movement. On the other hand, when the creator cannot deliver or completely 
abandon the promised project, the after-campaign interaction between the two actors 
will discontinue. These studies concentrate on reward-based crowdfunding 
(Kuppuswamy & Roth, 2016; Fan-Osuala et al., 2018), and donation-based 
crowdfunding (Skirnevskiy et al., 2017). 
 10 
 
 
Empirical studies on the impact of post ECF crowdfunding campaigns towards 
the firm performance need more investigation. For instance, crowdfunding studies in 
Spain and did not specifically focus on ECF. The researchers used the grounded theory 
to approach the topic due to the lightness of the data. The study focused on examining 
the effect of crowdfunding on employment growth from the year 2012-2013. Despite 
the economic downturn in 2012, the results showed a significant increment of 3,000 in 
employments and raised more than five million euros from 2,825 campaigns. The 
researchers further suggested future research in the area to look at the crowdfunding-
employment relationship in other countries for comparison purposes (Ramos & 
Gonzales, 2016). 
Meanwhile, Signori and Vismara (2016) focused on the firms' survival or failure 
post-money obtainment. According to the study, 10% out of 212 firms that successfully 
raised money from equity crowdfunding failed. Meanwhile, 30% survived due to 
seasoned equity offerings, additional capital injection from angel investors, further 
offering from an existing platform, and initial public offering or IPO listings. Also, 
firms that professional investors initially backed up would remain in operation. 
However, investors were yet to gain any return on their investment even though they 
were making huge profits (Hornuf & Schmitt, 2016). 
There are not many studies on SMEs or business ventures that are related to 
equity crowdfunding in Malaysia. This statement is also agreed by recent researchers 
that investigate the potential of Islamic-based crowdfunding for SME sustainability (Ab 
Rashid et al., 2021). ECF is a new emerging funding tool and is unique because it can 
realize the gaps left by the financial institutions, stimulate innovation from the crowd, 
and mitigate economic insecurity (Baumgardner et al., 2017). Previous studies on 
equity crowdfunding in Malaysia have focused on the opportunity of crowdfunding as 
 11 
 
 
a financing tool for a young entrepreneur (Mokhtarrudin et al., 2017), the regulatory 
framework of crowdfunding (Abdullah, 2016; Hassan & Zainuddin, 2013), the proposal 
of shariah equity crowdfunding model (Abdullah & Oseni, 2017; Wahjono et al., 2015), 
SMEs and entrepreneurs' awareness and perception (Ghazali & Yasuoka, 2018), the 
factors influencing the success of crowdfunding (Rahman et al., 2016), the effect of 
crowdfunding on entrepreneurs' self-belief (Awang et al., 2017), and the behavioral 
intention to use crowdfunding as a waqf instrument (Thaker et al., 2018). The latest 
study by Azman et al. (2020) empirically argues that online fundings such as mobile 
money (credit card), crowdfunding, and P2P lending significantly influence the micro-
enterprises sustainable income. The study also determined that most micro-enterprises 
used mobile money to fund their firm operations because of the eligibility issue when 
approaching other financial institutions. 
The Malaysian crowdfunding phenomena has revealed that crowdfunding-
related studies focusing on investors are on the rise. To provide a better understanding 
for the entrepreneurs to use ECF, Jayaraman et al. (2018) examine the intrinsic and 
extrinsic motivation of the investors to invest in the ECF campaigns. The investor's risk 
appetite strongly influences the decision to invest and suggests that the entrepreneurs 
efficiently manage the ECF projects and their customers' satisfaction. In addition, 
Wasiuzzaman et al. (2019) determine that mostly male investors invest in ECF projects 
compared to females. Female investors are very careful in deciding to invest in ECF 
project with social impact. They propose that the entrepreneurs and the ECF platforms 
seriously launch innovative projects and adapt to market changes, producing a sound 
financial performance that can attract more investors to participate and take advantage 
of social networks. However, a study conducted by Wulandari, Saeedi and Meskaran 
(2020) argued that despite intrinsic and extrinsic motivational factors, to be more 
 12 
 
 
specific, the investors invest in ECF project for better ROE. These past studies do not 
investigate the performance of the ECF recipients in Malaysia. 
Studies from abroad examined the performance of the firms' post ECF events 
and investigated the performance from the perspective of shareholder structure such as 
direct or nominee shareholders (Walthoff-Borm et al., 2018). Signori and Vismara 
(2016) relate the ECF campaigns with the performance of the firm. Décarre and 
Wetterhag (2014) examine the pre- and post-crowdfunding event related to equity 
offered, amount raised, number of investors, leverage, founder's investment, project 
campaign towards financial performance, sales growth, profit growth, asset growth, 
non-financial performance, and employment growth, and the importance of creating 
awareness and supporting entrepreneurial creativity of the educational institution (El 
Talla et al., 2018). Recently, Nasafi, Pangemanan and Sfenrianto (2020), examined the 
intention of use ECF in Jakarta. Using a random sampling approach, the study finds 
that ECF platform success stories and the completion stage of the ECF projects 
significantly attract potential investors' willingness to participate in ECF investment. In 
Appendix E, earlier studies referenced in the gap of this study are detailed. Section A 
contains studies on Malaysian crowdfunding, whereas Section B contains studies on 
post-equity crowdfunding events outside of Malaysia. 
The relationship between the ECF firms and the business intelligence in the 
Malaysian environment need to be investigated. Previously, a study by Ali, Miah and 
Khan (2017) suggests future research should examine the association between SMEs 
and business intelligence in a real entrepreneurial environment. Their systematic 
reviews analysis argues that founder and management teams need to upkeep with the 
technology. For instance, information management is vital in making a sound decision. 
Besides that, the technology interface also creates changes to the existing business 
 13 
 
 
strategy, market strategy, customer preferences, supply chain, supply and demand of 
products and services. Unable to be in the mainstream will bring disaster to the 
organization. 
 
1.4 PURPOSE OF THE STUDY 
The ECF has become an alternative funding tool to the entrepreneurial 
landscape in Malaysia. The Securities Commission Malaysia introduced ECF in 2015. 
However, Securities Commission Malaysia’s 2019 annual report disclosed that since 
ECF inception in 2015 until 2019, only 77 issuers have obtained ECF funding 
(Securities Commission Malaysia, 2019). In Malaysia, studies related to ECF are still 
in the emerging area. Thus, this study was conducted to investigate the post-
performance of ECF-funded firms empirically. According to the resource-based view 
(RBV) theory, a company needs to be competitive. The firm's development, resilience, 
and survival require internal and external resources to create more opportunities. 
Whether corporate or SMEs, every business entity needs adequate funds to ensure that 
organizational goals are realized while meeting business obligations. This study looks 
at aspects of internal resources in terms of financial management. Often the failure of 
companies, especially SMEs, is associated with the inability to manage finances 
properly. Financial management is crucial because liquidity and profitability affect a 
company's short- and long-term performance. Efficient financial management informs 
about the health status of a business and can immediately rectify any problems that 
occur. When a company seeks external funding, the results of sound financial 
management practices reflect the seriousness of its human capital in leading the 
business. Consequently, it boosts investors' confidence and opens up to better 
opportunities such as funding or expertise. This study focuses on the financial 
 14 
 
 
management practices of computerized accounting, financial analysis, financial 
planning, and working capital management. According to Wolmarans and Meintjes 
(2015), past studies related to financial management practices are not limited to similar 
practices.  
Since this study is point-and-click from ECF alternative finance, it takes the 
initiative of looking at the matter from the point of view of social capital. Social capital 
in this study focuses on the influence of social networks on business performance. 
According to Kwon and Arenius (2010), social networks can realize resources and 
opportunities, in turn, increase the value of entrepreneurs and their businesses. Agrawal 
et al. (2015) and Kuppuswamy and Bayus (2018) posit that the success of obtaining 
ECF funds involves social networks such as family friends. This network also opens up 
more opportunities for doing business (Thrikawala, 2011). Given that the study of 
social networks on the performance of firms in Malaysia has not been fully explored, 
this latest study hence aims to investigate the extent to which social networks impact a 
firm's performance.  
Past studies have shown the importance of financial systems such as banks on 
the performance of firms include the relationship between banks and firms increases 
the ability to obtain loans (Agrawal & Elston, 2001), and business angels and their 
influence confirm performance (Andersson & Lodefalk, 2020; Politis, 2008). Wang 
(2013) also examined the effect of microfinance lending on the development of SMEs 
in China. The study revealed that firms that used microfinance loans had better 
performance in increasing their revenues and net profits. Meanwhile, this current study 
investigates the impact of the ECF platform on the performance of ECF-funded firms 
in Malaysia.  
 15 
 
 
The entrepreneurial landscape worldwide, including Malaysia, is becoming 
more dynamic in line with the rapid development of technology. This technology also 
influences the way a business is run (Capocchi, 2019). The same goes for 
entrepreneurial financing until the creation of Fintech, which includes ECF (European 
Commission, 2020). Thus, the current study investigates how technology, namely 
business intelligence, influences the effectiveness of ECF-funded firms' financial 
analysis and planning on firm performance.  
It is essential to differentiate between the success of obtaining ECF and the 
success of firms' short- and long-term performance. The former success is not absolute. 
In contrast, the latter is vital to ensure development and sustainability. Thus, firms’ 
primary responsibility is ensuring that the success of firms meets the aspirations of their 
stakeholders. Therefore, a further objective of this study serves to provide a post-
performance of the ECF research in Malaysia. Additionally, studies on ECF can 
increase our knowledge about the potential of online financing in Malaysia. 
 
1.5 RESEARCH QUESTIONS 
The research questions are designed to help achieve the main objectives and 
purposes of the research. This study aims to investigate the performance of ECF-funded 
firms with the influence of financial management practices, social networks, and ECF 
platform provider, on the performance of equity-based crowdfunding firms by solving 
the following questions: 
1. What are the relationships between the below determinants and the 
performance of ECF-funded firms; 
i. Financial management practices (accounting information system, 
financial analysis and reporting, financial planning and control, and 
 16 
 
 
working capital management) on the performance of ECF-funded 
firms?  
ii. Social networks on the performance of ECF-funded firms? 
iii. Platform providers on the performance of ECF-funded firms? 
2. How does business intelligence mediate the relationship between the 
components of financial analysis and reporting, and financial planning and 
control towards the performance of the ECF-funded firms? 
3. What does the predictive model in this research study explain? 
 
1.6 RESEARCH OBJECTIVES 
The main objectives of this study are:  
1. To investigate the relationships between the below determinants on the 
performance of ECF-funded firms; 
i. Financial management practices (accounting information system, 
financial analysis and reporting, financial planning and control, and 
working capital management) on the performance of ECF-funded 
firms. 
ii. Social networks on the performance of ECF-funded firms. 
iii. Platform providers on the performance of ECF-funded firms. 
2. To investigate the mediating impact of business intelligence on the 
relationship between financial analysis and reporting, and financial planning 
and control towards the performance of the ECF-funded firms. 
3. To develop a predictive model of all variables under studied. 
 17 
 
 
1.7 SIGNIFICANCE OF THE STUDY 
Due to the rapid development in technology, mainly digital technology, the 
approach to do business has changed. The market population for the firm has also 
changed (Capocchi, 2019). For example, social media's influence has had a 
considerable impact on entrepreneurial funding, such as the emergence of innovative 
financial actors (Bernardino et al., 2020). As a result, there are more funding 
opportunities for entrepreneurs, such as crowdfunding (Block et al., 2018) and ECF 
(Coakley & Lazos, 2021). Crowdfunding has a substantial international effect that can 
solve entrepreneurs' capital deficiencies (Galliers et al., 2012). Thus, crowdfunding is 
concerned with the potential to materialize the opportunity and survival of start-ups that 
need a solid foundation.  
With the vast opportunity to lay under the umbrella of crowdfunding, 
specifically equity crowdfunding, financial management is a core subject in the firm's 
managerial process. It ensures the business's financial health. Thus, this study is 
significant as it will provide empirical findings from an emerging economy. It is of 
further importance due to the lack of investigation on the impact of financial 
management practices and financial characteristics on firms' performance, which have 
successfully raised money through equity crowdfunding. 
Even though financial management practices have been recognized in 
developed and developing countries, often SME financial management is 
underestimated in conventional financial management texts (McMahon et al., 1993).  
In Malaysia, the adoption of financial management practices among Malaysian SMEs 
is still lackluster (Harif et al., 2010). Most financial management studies concentrate 
on working capital management in corporate firms (Mohamad & Saad, 2010; 
Zariyawati et al., 2010) and religious organizations (Adil et al., 2013; Said et al., 2013).  
 18 
 
 
With the emergence of ECF as a financing alternative for start-ups and SMEs 
in Malaysia, it is necessary to investigate the financial management practices of the 
ECF-funded firms. Moreover, the concept of ECF resembles corporate finance 
(Coakley & Lazos, 2021). 
The gap in the knowledge of financial management practices and financial 
characteristics of SMEs needs to be addressed. Therefore, based on previous studies 
and acknowledgement of this gap, a study on the impact of financial management 
practices and the performance of equity-based crowdfunding firms is justified. A model 
of the impact of financial management practices will be developed and tested. Thus, it 
will contribute to the additional knowledge about financial management practices from 
the Malaysian perspective. Furthermore, previous studies that focused on the 
emergence of ECF as a source of alternative finance are scarce. This study will 
investigate the performance of ECF-funded firms.  
A study that investigates the impact of financial management practices on 
performance is evidence that policymakers have to look out for future policies of ECF 
as a viable, sustainable contending financing for MSMEs. To the practitioner, the 
findings will distribute knowledge on the model of financial management practices that 
is suitable for SMEs which intend to approach equity-based crowdfunding for the 
benefit of their business. To higher academic institutions, the findings will help in the 
enhancement of entrepreneurial courses and subjects. To the Government, the findings 
will demonstrate the uniqueness of crowdfunding which will motivate the provision of 
specific training to the existing entrepreneurship and incubator programs. These 
programs provide SMEs, especially start-ups, with up-to-date technology. The 
innovative technology assists SMEs to deal with the current entrepreneurial 
 19 
 
 
environment that changes very fast. These incubator programs also support SMEs with 
financial assistance (Aldammagh et al., 2020). 
This study investigates social networking and ECF platforms as external 
resources.  However, organizational strategy is one of the core components that 
promote the growth of any firm (Ismail & Mat Zin, 2009). Key factors that influence 
the firm's success and failure are divided into two; internal and external factors. The 
internal factors include, but not limited, to the labor force, managerial competencies, 
and the accounting systems employed. On the other hand, the external factors include 
the accessibility of reliable financing, government intervention and policies, rival 
competition, technology advancement, climate change, and economic conditions 
(Padachi, 2010).  
From a social network perspective, Tamyez et al. (2018) argue that studies 
linking the network and performance of SMEs in Malaysia are still lacking. Several 
studies linked networks and SMEs in Malaysia, such as the research by Ahmad et al. 
(2018) which connects SMEs run by women entrepreneurs and firm performance. The 
results show that the network affects the performance of the firms significantly. Another 
study by Kamaruddin et al. (2018) found networking as the main factor motivating 
women entrepreneurs to attempt business. At the same time, Dodd and Keles (2014) 
also highlight that networking has been a critical focus in OECD meetings. The findings 
from the meeting reveal that network capability improves the performance of SMEs 
involving underprivileged entrepreneurs such as young people, the disabled, 
immigrants, the unemployed, ethnic minorities, age-related, and women.  
There are also past studies that link the ECF and networks (Lukkarinen et al., 
2016; Nitani et al., 2019; Vismara, 2016). Troise, Tani and Jones (2020) argue that 
research on social network concerning ECF need further exploration. Therefore, to 
 20 
 
 
balance the potential of networks and the lack of previous studies in the literature, the 
current study deems it necessary to investigate the relationship of social networks under 
newly emergent ECF in Malaysia. The lack of research on networks and SMEs in 
Malaysia opens up many opportunities for researchers to study their impact on firm 
performance. 
When the Covid-19 pandemic struck the world, most of the daily routines of the 
countries, individuals and organizations were disrupted (Goodell, 2020), and it has 
caused economic insecurity (Baker et al., 2020). To reduce the impact of the pandemic, 
Malaysia imposed the movement control order (MCO) restriction starting from March 
18th 2020. Due to this MCO, people started working from home. Almost all businesses 
and banking sectors, either public or private, were closed. This caused entrepreneurial 
ventures and firms unable to obtain funding assistance due to the hibernation of the 
ordinary channel (Didier et al., 2020). Nevertheless, entrepreneurs and businesses could 
raise the funding needed via crowdfunding platforms (Moine & Papiasse, 2020). This 
signals the potential of ECF crowdfunding in Malaysia that needs to be studied. It 
further shows the significant as well as the motivation factors to undergo the research. 
Therefore, this study was duly initiated and investigated the impact of the ECF platform 
on SMEs’ performance. 
 
1.8 SCOPE AND LIMITATION OF THE STUDY 
 This research is against the background of the ECF phenomenon in Malaysia. 
This new mechanism of entrepreneurship financing is seen as potential for firms, 
especially SMEs, to meet financial needs, mobilize plans, exploit opportunities, and 
achieve entrepreneurial objectives. Respondents in this study are founders and 
managers who can make decisions in the company (Haleblian & Finkelstein, 1993; 
 21 
 
 
Lekhanya, 2016). These companies must be registered with the Companies 
Commission of Malaysia (SSM) and have successfully raised money through equity-
based crowdfunding from 2016-2019. This study measures the variables themselves in 
measuring the firm's performance, which means that the analysis is done at the medium 
level rather than the micro and macro levels of those variables. This study uses 
Resource-Based View (RBV) as the underpinning theory. In addition, this study also 
adopts the Signaling Theory, Financial Bricolage Theory, and Social Capital Theory to 
better explain financial management practices, the influence of social networks, the 
impact of ECF platforms, and the use of BI in dismantling the performance of ECF-
funded firms in Malaysia. The stages of this study are depicted in Figure 1.1.  
 
 
Figure 1.1: Structure of the Thesis 
 
1.9 CONCEPTUAL AND OPERATIONAL DEFINITIONS 
The conceptual and operational definitions are provided to enhance the clarity 
of the terms used in this study. The terms are as follow. 
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1.9.1 ECF-funded firms 
 
The operational definition depicts the ECF funded firms is the successful issuers 
of ECF in this study are referred to the ECF-funded firms. 
 
1.9.2 Firm Performance 
Conceptually, firm performance is defined as their capability to lead to the 
creation of employment and wealth and ability to survive and sustain (Sandberg et al., 
2002) that refers to the process of determining to which extent the firm activity 
accomplishes its goals (Larsson & Kinnunen, 2007), such as monthly generated 
revenues of the firm (Lucas, 2017). It has also been described as the process of 
measuring the effectiveness and efficiency of firm activities (Naude, 2007).  
Operationally, this study identifies a firm's performance as the ability of the firm 
to survive, grow, continue operation, or sustain. The performance includes both 
financial and non-financial perspectives. 
 
1.9.3 Financial Performance 
Conceptually, financial management performance is described based on three 
aspects; assets management, debt management, and the main one which is profitability. 
Profitability is determined by the return on equity (ROE) (Bharadwaj, 2000; Dedrick et 
al., 2003; Sam & Hoshino, 2013), return on assets (ROA) (Alfredo et al., 2013; 
Minichilli et al., 2010; Sam & Hoshino, 2013), and return on investments (ROI). Debt 
management is calculated by total debt to equity or TD/TE, and long-term debt to equity 
or LTD/TE. On the other hand, asset management is determined by receivable turnover 
or TR/S (Li, Moshirian, Nguyen & Wee., 2007; Sam & Hoshino, 2013), total assets 
 23 
 
 
turnover or TA/S, and inventory turnover or TI/S (Asheghian, 2012). Meanwhile, 
Décarre and Wetterhag (2014) measure financial performance based on sales growth, 
profit growth, and assets growth. In addition, as the performance indicator, the balance 
of liquidity and profitability is essential (Ehiedu, 2014).  
Operationally, this study measures financial performance based on profitability 
that include ROA, ROE and sales growth.  
 
1.9.4 Non-Financial Performance 
Conceptually, Perera, Harrison and Poole (1997) argue that firms must be able 
to foresee and accommodate performance measures that reflect their business strategy. 
The non-financial performance includes employment growth (Banerjee & Jesenko, 
2016; Décarre & Wetterhag, 2014; Keith et al., 2016), customer satisfaction (Gupta & 
Zeithaml, 2006; Ittner & Larcker, 1998; Li & Wang, 2010), survival (Sandberg et al., 
2002), ability to pay back the loan (Wahab, 2004), and also the firm size and success 
or failure of the firm (Anyadike-Danes & Hart, 2018).  
Operationally, this study investigates the non-financial performance that later 
will contribute to the firm performance. Thus, this study uses customer performance 
measures as the variables of non-financial performance. 
 
1.9.4.1 Customer performance 
Conceptually, customer performance measures include customer satisfaction 
that refers to the extent in which a customer realizes that the service or product provider 
has fulfilled the customer's basic needs (Reed & Hall, 1997). The provider who meets 
the customer's satisfaction and in return, receive the customer's loyalty which is then 
reflected in its profit. In most customer satisfaction studies, the standard principle 
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displayed is used as a performance indicator. Measuring customer satisfaction must be 
done continuously and not a one-time process (Cengiz, 2010). Additionally, customer 
experience can be identified using four dimensions; location, staff attribute, aesthetic 
perception and tangible and sensorial experience, and the positive influence of customer 
satisfaction (Ren et al., 2016). Meanwhile, Kasim and Minai (2009) refer customer 
performance to the growth of existing customer, repeat customers, customer lifetime 
value, new customer and customer survey rating and customer profitability.  
Operationally, this study, defined customer performance as the firm activities 
that connect with increasing new customers, managing customer satisfaction, loyalty, 
and new referral. 
 
1.9.5 Firms (Small and Medium Enterprises) 
Conceptually, SMEs in Malaysia as defined by Small and Medium Corporation 
Malaysia is based on the annual turnover or the number of permanent employees. SMEs 
are defined as firms with sales turnover for the manufacturing sector not exceeding 
RM50 million or a number of full-time employees not exceeding 200. SMEs are defined 
as firms with sales turnover for the services and other sectors not exceeding RM20 
million or the number of full-time employees not exceeding 75 (SMEinfo, 2018). 
Operationally, firms in this study are refer to the equity crowdfunding funded 
firms that are subject to the types of firms, and the number of full-time employees as 
defined by Small and Medium Corporation Malaysia.  
 
1.9.6 Financial Management 
Conceptually, financial management is concerned with coordinating the firm's 
financial resources. The coordination involves planning, directing, and controlling 
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mechanisms (Gitman, 2007; Weston & Brigham, 1996). It deals with financial decision 
and investment decision (Gitman, 2000). 
Operationally, this study, refers the financial management as planning, 
directing, controlling, monitoring, and organizing the firm's financial resources for 
better decision making to produce reliable financial information. 
 
1.9.7 Financial Management Practices 
Conceptually, financial management practices refer to the systems used to 
manage the firm's resources efficiently and effectively to achieve the firm's goals 
(Chung & Chuang, 2009, 2016). Financial management practices include working 
capital management, financial reporting and analysis, accounting information, 
investment appraisal, capital structure management, financial management expertise, 
and financial advice (Hailu & Venkateswarlu, 2016).  
Operationally, in this study, financial management practices refer to the 
procedures or approach exercised by the firm which include working capital 
management, financial reporting and analyzing, financial planning and control, and 
accounting information system. The purpose is to ensure that the firm's resources are 
managed competently, and the firm's objectives are met. 
 
1.9.7.1 Accounting information system 
Conceptually, accounting information system as explained by Munteanu, Zuca 
and Tinta (2011, p.63), “The accounting information system is the set of assumption 
postulates, principles, norms and evaluation rules of an organization by means of which 
the economic-financial operations are processed through accounting technical 
instrumentations. The accounting information system identifies correlates, calculates, 
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analyzes, registers, and provides all information regarding transactions or events that 
took place in a management center, given a certain time period. This system allows 
identifying, analyzing, calculating, classifying, registering, and running back over 
events and transactions. The accounting information system is influenced by the nature 
of the activity and its operations, by its size, by the volume of processed data, and the 
management and external users’ information necessities”. 
Operationally, this study defines an accounting information system as a 
computerized system used to facilitate collecting, recording, and analyzing the firm's 
financial data. 
 
1.9.7.2 Financial analysis and reporting 
Conceptually, financial reporting and analysis refer to recording, analyzing, 
auditing, and reporting the firm's financial data (Deresa, 2016). 
Operationally, in this study, financial reporting and analysis refer to an act of 
collecting, recording, analyzing, auditing and reporting of the firm's financial matter. 
 
1.9.7.3 Financial planning and control 
Conceptually, financial planning and control purpose is to assist the 
management in identifying costs-benefit activities that give an advantage to the firm, 
especially at the beginning stage of action undertaken. These include budgetary control 
and the ability to forecast for the next three to five years (Churchill & Coster, 2001), 
decide between two or more alternative options, project the action plan for contingent 
events, monitor the actions taken via performance measurement (Greenwood, 2002).  
Operationally, in this study, financial planning and control refer to management 
action and the ability to strategically choose between alternatives, prepare budgetary 
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control, forecast for the future and implement accordingly, check the performance and 
take remedial measures for variance. 
 
1.9.7.4 Working capital management  
Conceptually, working capital is defined as the cash available to meet the firm's 
daily operations. It also refers to the difference between current assets and current 
liabilities (Eljelly, 2004). Working capital management (WCM) refers to managing the 
firm's overall activities that are related to cash receipt and disbursement (Lieberman & 
Wagstaff, 2009), which significantly creates value for the firm's shareholders (Shin & 
Soenen, 1998; Stretcher et al., 2013). The components of WCM include but are not 
limited to inventories, cash and bank balances, receivables accounts, and payables 
accounts (Ullah et al., 2018). 
Operationally, in this study, working capital management refers to managing 
the firm's current assets and current liabilities that can be determined from the balance 
sheet. 
 
1.9.8 Social Networks  
Conceptually, social capital refers to the founder/managers’ third-party social 
network contacts (Giudici et al., 2013; Mollick, 2014; Zheng et al., 2014), including 
family friends (Kuppuswamy & Bayus, 2018; Ordanini et al., 2011) that affect funding 
outcomes and as the relationship that exists in the crowdfunding ecosystem between 
the founder and the platform provider (Liao et al., 2015) which is capable of generating 
opportunities among them (Huber, 2009). 
Operationally, the social networks in this study refer to networks that emerge 
from the founder, top management and network that emerges after the founder-platform 
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relationship is created. These include family, friends, business allies, social media fans 
and followers, platform's networks, such as existing investors registered with the ECF 
platforms and the platforms' business allies. 
 
1.9.9 Equity Crowdfunding Platform  
Conceptually, licensed equity platforms registered under Securities 
Commission Malaysia (Securities Commission Malaysia, 2015). 
Operationally, the equity crowdfunding platform is refered to the licensed 
equity platforms registered under Securities Commission Malaysia that act as the 
intermediary between the issuer (fund raiser) and the funder. 
 
1.9.10 Business Intelligence  
Conceptually, business intelligence is defined as a process that combines 
culture, technologies and policies, storing, analyzing and manipulating the collected 
data (Foley & Guillemette, 2010). Kohtamäki and Farmer (2017) refer to it as the group 
of experts and mechanisms used to transform raw data into meaningful information, 
whereas Miah (2018) labels it as an information system. All these definitions lead to 
the primary purpose that is to get valuable information that can be communicated, 
create knowledge, and help to encounter an emerging issue (Ajah & Nweke, 2019). 
Operationally, this study defines business intelligence as the information 
technology system that is used to transform, process, integrate, store, analyze and 
maneuver the raw data into useful information that can be used in making sound 
decision at any circumstance. 
 
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1.10 CHAPTER SUMMARY 
The study's topic has been outlined in this chapter. Starting with the study's 
background, the problem description, study gaps, research questions and objectives, the 
study's importance, the study scope, and limitations. The operational definitions for the 
inspected variables were created in this study.