Financial Management Practices in SMEs and Medium Sized Business Enterprises in Hong Kong

Published: 2021-07-21
1573 words
6 pages
14 min to read
Harvey Mudd College
Type of paper: 
Dissertation proposal
This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.

Globalization has made different business enterprises to struggle for their continued existence. Business discontinuity has also been influenced by a number of reasons besides varying market and economic situation. They are mainly caused by insufficient financial resources, lack of managerial skills and inadequate application of fundamental managerial practices. It is important for the organization use management practices that are able to generate important information to the management because they increase business performance in terms of efficiency. Management accounting practices are the most established management practice adopted by the different organization. It is divided into two parts namely financial and non-financial information. These are the main component of managerial accounting practices which SMEs and medium sized enterprises should adopt to improve their efficiencies and effectiveness in Hong Kong. According to Hopper and Goto (1999), stoppage to adopt management accounting practice such as cost accounting system in an analogous manner with the purpose of trying other new forms of management practices assumed to be more profit oriented may be lead to the failure of the business organization. The same idea is consistent with the findings of Reid and Smith (2000) who determined in their research that efficient data dispensation plays a significant role in improving the performance of both small SMEs and Medium sized enterprises. However, management accounting information is significant in planning, control, and monitoring all the operations of both SMEs and medium sized business enterprises. According to Nandan (2010), SMEs and medium sized business enterprises also need complex management accounting methods to effectively offer to manage their limited resources and improve net-worth. Despite that SMEs and medium sized business enterprises may have some challenges when using management accounting practices because of their small size and inadequate resources, the large business organization may also fail without adopting the same managerial accounting practices. For that matter, the adoption of perfect and consistent managerial information offered by management accounting system is also very essential for all types of business organizations including SMEs.

1.2 Problem Statement

SMEs and medium sized business enterprises play a significant role in the development of economic growth. They create employment opportunities and also create new ventures that support the growth of the economy. Many pieces of evidence have been filed by different researchers that most of SMEs fail in Hong Kong due to several reasons including lack of sufficient financial resources, use of obsolete technology and inappropriate accounting methods. These are the main problems which SMEs and medium sized business enterprises face in Hong Kong. These challenges arise from unsatisfactory business management, low experiences in key business operations such as accounting. Different researchers in their studies confirm that most business organizations fail due to lack of adoption of accounting and financial management practices. Some important researchers also highlight that finance and accounting are the key proficiency fields that improve business performance and therefore poor adoption may lead to failure of the different organization regardless of size and stability. It is therefore important for SMEs and Medium sized business enterprises to adopt sensible financial management practices that can help them plan and control their business activities (Abeygunasekera & Fonseka, 2012). Based on the above justification, the research problem has been identified to study the distinctions in implementing financial management practices in SMEs and Medium sized business enterprises in Hong Kong in relation to legal form, size, age, level of education and business site.

1.3 Research question

Are there any distinctions in implementing financial management practice in Hong Kong on the basis of age, education, size of the business, legal form and leverage?

What is the impact of adopting financial management tools and methods in Hong Kong?

What is the main reason for adopting different financial management tools and methods?

1.4 Objective of the Study

To study the variations in adoption of financial management tools and methods in Hong Kong in relation to business age, education level of the investor, business location and legal form.

To investigate the effect of adopting various forms of financial management tools and methods in Hong Kong based on the same basis.

To determine the effect of an adoption of financial management tools and techniques based on the same basis.


According to Meredith (1986), financial management is the key function of business management that increases the performance of small and medium sized business enterprises. This meaning put more weight on the function and the position of financial management relative to other areas of management. Researchers such as McMahon et al. (1993) described financial management as a branch of business management practice which is associated with sourcing and mobilization of funds to purchases assets and to finance operating activities. He also emphasizes that financial management is also focused on how such finances are allocated between different areas to effectively achieve the business objectives. In addition, McMahon et al. (1993) further highlighted that current financial management is mainly focused on developing financial plans, financial control, and decision making. In his latest research, he also concluded that financial management involves all areas of financial management and use but also focuses on the financial implication. It dictates how the business markets its products, finance its investment portfolios and how the business organization performs. He also added that financial management is mainly associated with future prospects of the business organization and it is the main purpose is to find strategies for maximizing the use of finance to generate more profits.

Currently, the practices of financial management have drawn the attention of very many researchers more specifically on SMEs and medium sized business enterprises. Researchers such as McMahon & Forsaith, 1993 were focused on financial management practices in SMEs. They concluded that financial management practices cover areas such as accounting information system which involves nature and purpose of financial records, cost accounting and the use of the computer in record keeping. They also categorized them as financial reporting and analysis which explains the purpose and nature of fiscal reporting, audit, and explanation of financial reports (Moores & Mula, 1993). The final section of financial management practice is working capital management dealing with the asset acquisition, project appraisal techniques and risk and portfolio management.


3.1 The Sample

It is not easy to determine the number of all SMEs and medium sized business organizations in Hong Kong because all the available data are accurate and imprecise. For that matter, it not possible to find any centralized database that shows all the data required for this analysis. Because of time constraints, it will be important to for the researcher to only select a sample of 60SMEs and 20 medium sized business enterprises under manufacturing sector. This study will only be limited to Honk Kong town. Most of SMEs are found in Hong Kong and they are mainly from the manufacturing sector. These kinds of business activities are common in Hong Kong because they receive support from other sectors such as agriculture.

3.2 Data Collection

Data will be collected using structured and semi-structured questionnaires. These questionnaires will be sent directly to the registered SMEs in the MIC and they will only be allowed to collect data in Hong Kong only. The registration period will only be from10 September 2017 to 31 September 2018. The sample will be limited to 60 participants for SMEs while 20 will be for medium sized enterprises. They will also be screened through a pilot survey to increase their reliability. Before data collection, individuals will be asked if they are interested in being part of the study in order to provide the researcher with adequate time to elaborate to them the intention of the study. Data will be collected using disproportionate stratified random sampling design through the utilization of SPSS software version PASW 18.

3.5 Data Analyzing Techniques

Before data analysis, reliability test will be conducted in order to increase the accuracy of the judgment. It will be important to carry out a test for internal consistency for various financial management practices using Cronbachs alpha coefficient. Only data collected from financial management practices of SMEs and medium sized business enterprises associated with the questionnaires will be considered reliable. The normality of data will also be tested using Kolmogorov Test and the Shapiro-Wilk test before formulating the hypotheses. Data will be analyzed using SPSS software version (PASW 18) as it is one of the powerful tools that can generate an accurate and correct.


Meredith, G 1986, Financial management of the small enterprise, McGraw Hill, Sydney, New South Wales.

Moores, K & Mula, J 1993, 'Managing and controlling family owned businesses: A life cycle perspective of Australian firms', research report, Bond university, Gold Coast, Queensland

Pandey, I 2004, Financial Management, 8th edn, Vikas publishing house Pvt Ltd, Delhi. Peacock, R 1985, 'Finding the causes of small business failure', Management Forum, vol 11, no. 02, pp. 77-89.

Perren, L, Berry, A & Patridge, M 1999, 'The evolution of management information, control and decision-making processes in small growth-orientated service sector businesses: exploratory lessons from four cases for success', Journal of Small Business and Economics.

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Varanya, T & Tippawan, P 2007, 'Accounting Information Requirement and Reporting Practices of Thai SMEs', Journal of Finance and Accounting, vol 08.

McMahon, R, Holmes, S, Hutchinson, P & Forsaith, D 1993, Small enterprise financial management: Theory and Practice, Harcourt Brace, Sydney

Hopper, T., Koga, T., & Goto, J. (1999). Cost accounting in small and medium sized Japanese companies: Anexploratory study. Accounting and Business Research, 30, 73-86.

Reid, G. C., & Smith, J. A. (2002). The bigger picture. FinancialManagement.

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Nandan, R. (2010). Management Accounting Needs of SMEs and the Role of Professional Accountants: ARenewed Research Agenda. Journal of Management Accounting Research, 8, 65-77.


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