The Influence of Institutional Pressures and Personal Attributes on Perceived Importance of Financial Reporting Among Micro-Entrepreneurs: Evidence from Malaysia

Abstract

This study examines the influence of institutional pressures and personal attributes on the perceived importance of financial reporting among micro-entrepreneurs in Malaysia. Survey data from 194 micro-entrepreneurs were analyzed using ordinary least squares (OLS) regression to test the proposed hypotheses. The results indicate that institutional pressures from Malaysian regulatory bodies, particularly the Inland Revenue Board, and the financial literacy of micro-entrepreneurs are significantly associated with stronger perceptions of the importance of financial reporting. These findings offer practical insights for policymakers and stakeholders seeking to enhance reporting practices and promote financial literacy within the microenterprise sector. While prior research has largely concentrated on small and medium-sized enterprises (SMEs), the financial reporting practices of micro-enterprises remain underexplored, despite their distinctive characteristics and critical role in the economy. By addressing this gap, this study enriches the financial reporting literature and advances a broader understanding of micro, small, and medium-sized enterprises (MSMEs).

1. Introduction

The importance of financial reporting for the survival and growth of small businesses has been widely acknowledged in the literature. Prior research has identified poor accounting practices, such as inadequate record-keeping, unreliable financial data, and ineffective use of accounting information in decision-making, as key contributors to the high failure rates of micro, small, and medium enterprises (MSMEs), particularly during their early stages (Boachie-Mensah & Marfo-Yiadom, 2005; Teka, 2022). These shortcomings are often linked to personal attributes of business owners, including limited accounting knowledge (Said et al., 2009), lack of financial management experience (Nayak & Greenfield, 1994), low levels of education and training, insufficient managerial competence, and restricted access to financing due to poor financial documentation (Herrington et al., 2010) Strong financial reporting practices enhance decision-making, strengthen business resilience, and improve a business’s prospects for long-term survival (Rathnasiri, 2014). Moreover, accurate financial reporting is crucial for ensuring tax compliance, as it minimizes tax leakage by facilitating the proper and legitimate computation of income (Ngah et al., 2021). Despite the importance of strong financial reporting practices to businesses’ survival and success, many MSMEs fail to adopt sound financial reporting practices, thereby jeopardizing their sustainability and growth potential (Rathnasiri, 2014).

Most previous studies have provided valuable insights into the financial reporting practices of small and medium-sized enterprises (SMEs) (e.g., Jaffar et al., 2011; Karadag, 2017; Mang’ana et al., 2024; McMahon, 2001; Panizzolo et al., 2017; Rathnasiri, 2014; Son et al., 2006), yet limited attention has been given to micro-enterprises. This gap is critical, as micro-enterprises differ significantly from SMEs in terms of structure and operations. They often operate with minimal formal structures, constrained human and financial resources, and low levels of technological adoption, and are typically managed by owner-managers who rely primarily on their own financial knowledge with limited access to professional support. In many developing economies, micro-enterprises constitute the majority of MSMEs and play a pivotal role in driving national economic development (OECD, 2017; Teka, 2022).

Malaysia provides a particularly relevant context for this investigation. According to SME Corp Malaysia (2024), firms with annual sales below RM300,000 or fewer than five full-time employees are classified as micro-enterprises. In 2024, they represented 69.7% (767,421 firms) of all MSMEs, compared to 28.5% small-sized firms and 1.8% medium-sized firms.

Despite their prevalence and economic significance, empirical research on the financial reporting practices of micro-enterprises remains scarce. In particular, little is known about how personal attributes and institutional pressures, such as regulatory requirements imposed by tax authorities, influence micro-entrepreneurs’ perceptions of financial reporting. To address this gap, the present study empirically examines the associations between institutional pressures and personal attributes, including financial literacy, awareness of financial reporting regulations, gender, education level, and accounting background, and the perceived importance of financial reporting among Malaysian micro-entrepreneurs.

Perceptions of the importance of financial reporting may influence the extent to which micro-business owners implement sound reporting practices. Specifically, this study seeks to shed light on their attitudes toward the preparation and use of financial reports, which are under-researched in existing literature. By focusing on this underexplored segment, the study provides insights that are both theoretically valuable and practically significant for informing policy, educational initiatives, and regulatory frameworks. Investigating this context allows us to capture the realities faced by micro-entrepreneurs in an emerging economy, where institutional pressures and financial literacy levels may differ substantially from those in developed countries. Using a sample of 194 micro-entrepreneurs and OLS regression analysis, our findings indicate that coercive institutional pressures, particularly those exerted by Malaysia’s Inland Revenue Board (IRB) and the financial literacy of micro-entrepreneurs, are significantly associated with stronger perceptions of the importance of financial reporting. This study contributes to the literature by extending institutional theory within the context of micro-enterprises in a developing country, demonstrating how regulatory influence and individual-level capabilities jointly shape financial reporting attitudes. From a practical standpoint, the results underscore the importance of regulatory engagement and financial education initiatives in enhancing financial reporting practices among micro-enterprises. These insights are particularly relevant for policymakers, tax authorities, and MSME development agencies aiming to improve reporting transparency, tax compliance, and financial decision-making in the informal and micro-enterprise sectors. While this study focuses on Malaysia, the insights may be relevant to other jurisdictions with similar economic and institutional environments, particularly in Southeast Asia or other emerging markets. By highlighting the institutional and financial literacy factors that influence financial reporting practices, our findings can offer guidance to policymakers, practitioners, and researchers in similar contexts.

The remainder of this paper is structured as follows: Section 2 reviews the relevant literature and outlines the hypotheses. Section 3 describes the research methodology. Section 4 presents the empirical results, followed by the discussion and conclusion in Section 5, which also highlights the study’s contributions, limitations, and directions for future research.

2. Literature Review and Hypotheses

2.1. Institutional Pressures from Regulatory Bodies

Institutional users of financial reports play a crucial role in shaping the development of accounting practices within a country (Hasan & Islam, 2023; Muniandy & Ali, 2012; Nalukenge et al., 2012; Negash & Lemma, 2020). From the perspective of institutional theory, organisational practices, such as financial reporting, are influenced by three types of institutional pressure: mimetic, normative, and coercive (DiMaggio & Powell, 1983). Mimetic pressure arises in situations of uncertainty, where firms imitate more successful counterparts due to limited knowledge or difficulty in evaluating alternatives. This imitation is often viewed as a practical and low-cost strategy to mitigate risk. Normative pressure originates from professional norms, industry standards, and educational influences that shape expectations about appropriate conduct. In contrast, coercive pressure stems from formal regulations and legal requirements imposed by institutions on which firms depend, such as government authorities.

According to Son et al. (2006), the primary users of financial statements prepared by micro, small, and medium-sized enterprises (MSMEs) are business owners and tax authorities. Business owners rely on these statements for various internal purposes, including securing loans, managing cash flows, and planning for wealth accumulation (Sian & Roberts, 2009). Despite these potential benefits, many small enterprises primarily engage in financial recordkeeping to meet tax compliance requirements (Argilés & Slof, 2003).

In the Malaysian context, the Inland Revenue Board (IRB) plays a central role in assessing, collecting, and enforcing income tax from individuals and businesses. Financial reporting is fundamental to this process, as it provides the necessary financial data for accurate tax evaluation. Under Malaysian tax law, all business owners are legally required to register as taxpayers, regardless of whether their businesses generate a profit or operate at a loss. Even loss-making businesses are required to submit an Income Tax Return Form. Hence, business owners face considerable pressure to maintain complete and accurate financial records to comply with IRB regulations and avoid penalties. As such, the IRB acts as a significant source of coercive isomorphism, exerting regulatory pressure that influence the financial reporting practices of MSMEs. This highlights how compliance-driven motivations often underpin reporting behaviours in small business settings, particularly where statutory disclosure requirements are minimal or absent.

Empirical evidence supports this institutional influence. Nalukenge et al. (2012) found that regulatory pressure has a positive effect on the quality of accounting information among SMEs in Uganda. Similarly, Edvardsson and Enquist (2006) concluded that external pressure is a key driver in improving the quality of financial reporting practices. In Malaysia, regulatory bodies such as the IRB enforce legal compliance, compelling business owners to maintain accurate records and reinforcing the importance of financial reporting for both compliance and accountability. Based on these arguments and prior empirical evidence, the following hypothesis is proposed:

H1. 

There is a positive relationship between the institutional pressure exerted by Malaysian regulatory authorities and the perceived importance of financial reporting practices.

2.2. Awareness of Financial Reporting Regulations

Beginning 1 January 2016, all private entities in Malaysia have been mandated to comply with the Malaysian Private Entity Reporting Standard (MPERS), the prescribed accounting framework for small and medium-sized enterprises (SMEs). MPERS is largely based on the International Financial Reporting Standard for Small and Medium-Sized Entities (IFRS for SMEs), issued by the International Accounting Standards Board (IASB). The IASB defines the IFRS for SMEs with a broad scope, making it applicable not only to SMEs but also to micro-entities, thereby ensuring relevance across the full spectrum of smaller entities. To facilitate implementation for micro-enterprises, the IASB also published A Guide for Micro-Sized Entities Applying the IFRS for SMEs, which simplifies the application process and helps reduce compliance costs. The adoption of such international standards facilitates the production of more consistent and credible financial statements, thereby supporting business expansion both locally and internationally. In line with this, the framework is relevant to micro-enterprises, and awareness of MPERS is vital for ensuring accurate and consistent financial reporting.

Despite these developments, prior research suggests that many small business owners lack awareness of financial reporting regulations, as they often delegate accounting and tax responsibilities to external service providers (Sian & Roberts, 2009; Wijekoon et al., 2021). However, Jaffar et al. (2011) contend that awareness of financial reporting standards can positively influence financial reporting practices among Malaysian SMEs. Supporting this view, a Malaysian Institute of Accountants (MIA) survey in 2017 revealed that 73% of SMEs recognised the MPERs and expressed readiness to comply with its requirements. This suggests that heightened awareness of financial reporting obligations and their associated benefits may increase the perceived importance of sound financial reporting practices. Based on these arguments, the following hypothesis is proposed:

H2. 

There is a positive relationship between awareness of financial reporting regulations and the perceived importance of financial reporting practices.

2.3. Financial Literacy

Financial literacy is an individual’s ability to understand, analyse, and act on financial information (Marriott & Mellett, 1996). Practically, it encompasses the knowledge and skills required to manage money wisely, make sound financial decisions, and avoid costly mistakes. It includes the comprehension of financial concepts, familiarity with financial products and institutions, and the application of effective financial management strategies (Lusardi et al., 2010). A strong foundation in financial literacy supports optimal financial planning, control, and resource allocation. According to Wise (2013), financially literate managers are more likely to adopt appropriate financial tools, interpret financial reports, manage cash flow, and avoid insolvency or business failure. Mutegi et al. (2015) found that business owners with high financial literacy are more likely to use financial reports actively in their decision-making. In contrast, financially illiterate owners tend to overlook such information, which can adversely affect their competitiveness. This is supported by prior studies that documented high SME failure rates linked to inadequate financial literacy (Barte, 2012; Berryman, 1983).

Moreover, research has shown that financially literate business owners tend to achieve better performance outcomes. They make informed investment decisions, demonstrate stronger working capital management, and generate higher returns on assets (Hussain et al., 2018; Munyuki & Jonah, 2021). Prior studies demonstrate a positive association between financial literacy and financial behaviour, including planning, saving, and strategic resource use (e.g., Lahiri & Biswas, 2022; Yoshino et al., 2017).

In the context of micro-enterprises, particularly in developing countries, financial literacy is often a determinant of business survival. Entrepreneurs who understand basic financial principles such as budgeting, credit management, and record-keeping are more likely to maintain proper accounting records and adhere to financial reporting practices (Mutua, 2015; Tuyisenge et al., 2015). Anshika and Singla (2022) also found a positive relationship between entrepreneurs’ financial literacy and the performance of micro-enterprises. Based on these arguments, financial literacy is expected to shape how micro-entrepreneurs perceive the relevance of financial reporting in managing their businesses. Hence, the following hypothesis is proposed:

H3. 

There is a positive relationship between financial literacy and the perceived importance of financial reporting practices.

2.4. Gender of Business Owners

The literature suggests that the gender of the business owners plays a significant role in shaping business-related behaviours, including planning, decision-making, risk tolerance, and ethical perspectives (Ittonen & Peni, 2012; Yalcintas et al., 2021). Dawson (1997) contends that females, influenced by diverse ethical considerations, tend to express a broader range of values and behaviours. Geiger and O’Connell (1998) argue that males are generally more driven by competition, power, and financial gain, whereas women are more likely to prioritise social relationships, structured processes, and regulatory compliance. Females also tend to exhibit stronger communication skills and are more likely to raise concerns that males may overlook (Oradi & Izadi, 2019). Studies suggest females are generally more risk-averse, conservative in decision-making, and less tolerant of opportunistic behaviour (Byrnes et al., 1999; Faccio et al., 2016).

The presence of females in leadership and governance roles is also linked to improvements in financial oversight and reporting. Several studies underscore the positive impact of female representation at the board and executive levels. For instance, Francis et al. (2015) found that the presence of female directors is associated with higher-quality financial reporting. Supporting this, Oradi and Izadi (2019) observed that female audit committee members, particularly those who are independent or possess financial expertise, significantly reduce the likelihood of financial restatements. Similarly, El-Dyasty and Elamer (2022) reported that gender-diverse boards are associated with reduced earnings management and more accurate reporting. Orazalin (2020) also highlighted the role of female directors in curbing earnings manipulation, while Davis and Garcia-Cestona (2021) found that financial restatements occur less frequently when a female serves as CFO and the board includes a higher proportion of women.

Beyond financial reporting, gender diversity has been linked to organizational outcomes. Gender diversity in leadership may enhance organisational decision-making by encouraging attention to qualitative dimensions such as social responsibility, legal compliance, and humanitarian values (Hafsi & Turgut, 2013). Espinosa-Méndez and Inostroza Correa (2022) found a positive relationship between female CEOs and SME performance, while Fernando et al. (2020) observed that women in top management roles enhance organisational performance both in stable conditions and during times of change. Vershinina et al. (2020) argue that females respond more diligently to regulatory environments than men, which may contribute to stronger business governance and compliance. Based on these arguments, the following hypothesis is proposed:

H4. 

There is a positive relationship between gender (female owners) and the perceived importance of financial reporting practices among micro-entrepreneurs.

2.5. Education Level of Business Owners

A business owner’s level of formal education has a significant influence on their ability to understand and implement financial reporting practices. Education imparts technical knowledge, cognitive skills, and problem-solving capabilities that are crucial for managing and growing a business (Baum et al., 2011). Higher educational attainment further equips entrepreneurs to analyse complex business environments, assess risks, and identify opportunities (Espinosa-Méndez & Inostroza Correa, 2022). Empirical evidence suggests a strong link between education level and the quality of financial management. Ruiz and Collazzo (2021) found that businesses led by more educated owners are more likely to adopt and consistently use formal accounting systems. Similarly, Marconatto et al. (2022) found a positive association between the education level of SME owners and business growth, emphasising that formal education and practical experience can complement each other in enhancing managerial competence.

In innovation-driven contexts, Gao and Hafsi (2015) demonstrated that educated owners are more likely to invest in R&D and adopt long-term strategic thinking, driven by greater cognitive capacity and risk tolerance. Education also fosters a deeper understanding of regulatory compliance and financial standards. Jaffar et al. (2011) found that SME owners with higher academic qualifications exhibit stronger financial reporting practices. In sum, the extant literature suggests that education enhances financial competence and the perceived value of accurate and transparent financial reporting. Based on the above arguments, the following hypothesis is proposed:

H5. 

There is a positive relationship between business owners’ level of education and the perceived importance of financial reporting practices.

2.6. Accounting Background of Business Owners

A solid foundation in accounting principles and financial reporting is often cultivated through formal tertiary education. Individuals with academic training in accounting are generally more proficient in understanding the structure, purpose, and relevance of financial statements. Consequently, they are more inclined to appreciate the importance of financial reporting in effective business management (Hutadjulu & Blesia, 2016). In contrast, business owners lacking basic knowledge in accounting and management may face challenges in running their enterprises effectively (Teka, 2022). Seghers et al. (2012) found that entrepreneurs with formal training in accounting or finance demonstrated greater awareness of financial options and made more informed financial decisions.

Gupta et al. (2020) demonstrated that CEOs with academic training in finance, accounting, or economics are better equipped to make strategic investment decisions, with financial education serving as a reliable indicator of financial decision-making competence. This finding is reinforced by Wulf and Stubner (2013), who argue that executives with educational backgrounds in business-related disciplines are more likely to adopt and align with long-term organisational strategies. Custódio and Metzger (2014) further show that CEOs with finance expertise adopt more proactive and resilient financial strategies, particularly under adverse market conditions, and are associated with firms that produce higher-quality accounting information. In sum, these studies suggest that a background in accounting enhances the understanding and perceived importance of financial reporting. Based on these arguments, the following hypothesis is proposed:

H6. 

There is a positive relationship between business owners’ accounting background and the perceived importance of financial reporting practices.

3. Methodology

3.1. Sampling Strategy

This study employed a purposive sampling technique. Eligible respondents were required to (i) own a business that qualifies as a micro-enterprise under Malaysian guidelines and (ii) be registered as sole proprietors. Potential respondents were primarily identified through social media platforms (e.g., Instagram, TikTok, Facebook), as many micro-entrepreneurs actively use these channels to promote and sell their products. A total of 1000 potential respondents were identified and contacted to participate in the online survey questionnaire. This study utilized the contact details obtained from social media to distribute the online survey questionnaire via WhatsApp’s private messages and email. A snowball sampling method was also used to reach additional respondents through existing networks. Data were also collected through physical questionnaires to maximize outreach and respondent convenience. The questionnaire included a cover letter introducing the study’s objectives and a consent form, which respondents had to agree to before participating. The consent form assured respondents of the confidentiality and privacy of their data, which complied with ethical research standards. Ethical clearance was obtained from the University Research Ethics Committee prior to the commencement of data collection.

3.2. Measurement of Variables

The questionnaire was structured into five sections with detailed instructions provided at the beginning of each to minimise confusion: Section A gathered demographic and business-related information (e.g., age, gender, education level, business age, initial capital). Section B comprised statements assessing respondents’ awareness of financial reporting regulations applicable to MSMEs. Section C consisted of statements regarding the perceived importance of financial reporting practices. Section D included statements related to institutional pressure from Malaysian tax authorities. Section E assessed the respondents’ financial literacy. Respondents were asked to indicate the extent to which they agree with the statement items, using a 4-point Likert scale (1 = Strongly disagree, 4 = Strongly agree). This scale was chosen to avoid central tendency bias, which is common in Malaysian survey responses, where respondents often default to the neutral midpoint (Harrison & McLaughlin, 1993). Eliminating the midpoint encouraged more decisive responses.

All survey statements were adapted from established prior studies. The perceived importance of financial reporting was measured using 20 items from Sian and Roberts (2009), Rathnasiri (2014), and Iswoyo et al. (2019), such as, “I use financial reports to compare my actual income with the target income.” Institutional pressures were assessed with nine items adapted from Nalukenge et al. (2012), including “I keep financial reports because tax authorities will use them in assessing tax.” Awareness of financial reporting regulations was measured using seven items from Wijekoon et al. (2021), for example, “Business documents, records, and business accounts should be kept for seven years.” Financial literacy was captured using 14 items from Lahiri and Biswas (2022) and Yoshino et al. (2017), such as “Personal expenses are not regarded as business expenses.”.

Consistent with prior research, gender was coded as a dummy variable (1 = female, 0 = male; El-Dyasty & Elamer, 2022), education level as a dummy variable (1 = bachelor’s or master’s degree, 0 = otherwise; Marconatto et al., 2022; Ruiz & Collazzo, 2021), and accounting background as a dummy variable (1 = has accounting background, 0 = otherwise; Gupta et al., 2020; Iswoyo et al., 2019). Business size (amount of start-up capital) and Age of Business (years in operation) were included as control variables following prior studies (Collis & Jarvis, 2002; Karadag, 2017; Nalukenge et al., 2012).

3.3. Data Collection

A pilot study was conducted to identify issues related to question clarity, structure, and the estimated time required to complete the survey (Cooper & Schindler, 2003). Feedback from the pilot indicated that some terms were too technical; therefore, jargon was simplified or removed in the final version to enhance comprehension.

Data collection was conducted across physical and digital platforms. The survey was conducted over a six-month period, from September 2021 to February 2022. Following several reminders and follow-ups, 246 responses were received, yielding a response rate of 24.6%. After cleaning data to eliminate irrelevant or incomplete responses, 194 valid responses were retained for analysis. The sample size of 194 is considered adequate as it exceeds the commonly applied “10-times rule,” which recommends a minimum sample of at least ten times the number of indicators included in the model (Hair et al., 2017). In line with Cohen’s (1992) power analysis guidelines, for a model with eight independent variables, a 5% significance level, and a minimum R² of 0.10, the required sample size is 144. Accordingly, the sample of 194 provides sufficient statistical power to test the proposed hypotheses.

3.4. Data Analysis

This study used Ordinary Least Squares (OLS) regression analysis to test the proposed hypotheses. In particular, multiple regression analysis was employed to examine the effect of the independent variables on the dependent variable while controlling for other influencing factors. The following multiple regression model was developed:

PIFR = β₀ + β₁IP + β₂AFR + β₃FL + β₄Gender + β₅Edu + β₆Acc + β₇Size + β₈Age + ε

where

• PIFR = Perceived Importance of Financial Reporting Practices
• IP = Institutional Pressures
• AFR = Awareness of Financial Reporting Regulations
• FL = Financial Literacy
• Gender = Gender (1 = female; 0 = male)
• Edu = Education Level (1 = higher education; 0 = otherwise)
• Acc = Accounting Background (1 = yes; 0 = no)
• Size = Size of Business (Amount of Start-up Capital)
• Age = Age of Business (1 = above 5 years; 0 = otherwise)
• β₀ = Intercept
• β₁ to β₈ = Coefficients for each independent and control variable
• ε = Error term

3.5. Assessment of Measurement Constructs

Before testing the hypotheses, a measurement model assessment was conducted to evaluate the reliability and validity of the constructs. Sampling adequacy was confirmed by the Kaiser–Meyer–Olkin (KMO) value of 0.765, exceeding the recommended threshold of 0.60 (Kaiser, 1974). Bartlett’s test of sphericity was also significant (χ² = 19,327.454, df = 1953, p < 0.001), indicating that the data were suitable for factor analysis. As shown in

Table 1. Reliability and Validity.

Construct	# Items	Factor Loading Range	CR	AVE	Cronbach’s α
PIFR	20	0.692–0.842	0.967	0.599	0.97
IP	9	0.752–0.944	0.973	0.794	0.97
AFR	7	0.808–0.866	0.943	0.703	0.93
FL	14	0.583–0.885	0.948	0.581	0.92

Notes: PIFR = Perceived Importance of Financial Reporting; IP = Institutional Pressure; AFR = Awareness of Financial Reporting Regulation; FL = Financial Literacy.

, all standardized factor loadings exceeded 0.50, demonstrating indicator reliability (Hair et al., 2010). Convergent validity was established, as the Average Variance Extracted (AVE) values for all constructs were greater than the 0.50 benchmark (Fornell & Larcker, 1981). Internal consistency was further confirmed, with Composite Reliability (CR) values ranging from 0.943 to 0.973 and Cronbach’s alpha values exceeding 0.90. Following the guidelines of Sekaran and Bougie (2013), a Cronbach’s alpha above 0.80 reflects strong reliability. Collectively, these results confirm that the constructs demonstrate robust reliability and validity, providing a solid foundation for subsequent hypothesis testing using OLS regression analysis.

4. Results

4.1. Descriptive Analysis

Table 2. Demographic information of respondents (N = 194).

Demographic	Particular	n	%
Gender	Male	46	23.71
	Female	148	76.29
Age of respondents	Below 20 years	2	1.03
	21 to 30 years	109	56.19
	31 to 40 years	80	41.24
	Above 40 years	3	1.55
Accounting background	Yes	75	38.66
	No	119	61.34
Education level	SPM	22	11.34
	STPM/Diploma	83	42.78
	Bachelor’s degree	77	39.69
	Master	12	6.19
Start-up capital	Below RM25,000	171	88.14
	RM25,001 to RM50,000	18	9.28
	RM50,001 to RM75,000	2	1.03
	RM75,001 to RM100,000	2	1.03
	Above RM100,000	1	0.52
Age of business	Less than 2 years	105	54.12
	2 to 5 years	56	28.87
	6 to 10 years	14	7.22
	More than 10 years	19	9.79

presents the demographic profile of the 194 micro-entrepreneurs who participated in this study. A majority of respondents were female (76.29%), while male respondents accounted for 23.71%. This gender distribution suggests a strong female representation within the micro-enterprise sector in Malaysia. In terms of age, the majority of respondents were young adults. Specifically, 56.19% of the participants were aged between 21 and 30 years, followed by 41.24% who were between 31 and 40 years old. These findings reflect a growing trend of youth involvement in entrepreneurial activities in Malaysia. Regarding education level, most respondents had attained at least a post-secondary qualification. The largest group held STPM (Malaysian Higher Certificate of Education) or diploma qualifications (42.78%), followed by those with a bachelor’s degree (39.69%). This indicates a relatively well-educated sample of micro-entrepreneurs.

Regarding educational background in accounting, a majority (61.34%) reported no formal accounting training. Only 38.66% indicated they had a background in accounting, typically through diploma or degree-level qualifications. This distinction is notable, as those with formal accounting education are more likely to possess the technical knowledge necessary to understand and value sound financial reporting practices. In terms of start-up capital, most businesses (88.14%) were launched with less than RM25,000, highlighting the low-capital nature of most micro-enterprises. Finally, regarding business age, more than half of the enterprises (54.12%) had been in operation for less than two years, followed by 28.87% that had been operating for 2 to 5 years.

Table 3. Descriptive statistics of survey items.

Statement Items	Mean	SD
Perceived importance of financial reporting practices
To compare actual income with the target income.	3.47	0.699
To compare the actual cost with the target cost.	3.49	0.692
To decide on the owner’s pay or bonus.	3.27	0.905
To decide on an employee’s pay or bonus.	3.08	1.009
For personal wealth management.	3.21	0.893
For succession planning in the business.	3.32	0.802
For business tax planning.	3.07	1.005
For new investment decisions.	3.15	0.962
For new borrowing decisions.	3.12	1.024
To make pricing decisions for a product or service in the business.	3.25	0.928
To make marketing decisions in the business.	3.25	0.883
For decisions to take on new staff.	2.94	1.09
To manage fixed assets in the business.	3.09	1.044
To manage current assets in the business.	3.22	0.798
To manage existing debt in the business.	3.38	0.826
To manage cash flows in the business.	3.46	0.713
To improve business performance	3.48	0.714
To know the profit and loss information	3.57	0.634
To meet the bank’s requirements for loan purposes	3.1	1.08
To comply with tax laws for tax purposes	3	1.043
Institutional Pressures
Tax authorities require a record of every transaction to be kept.	2.83	1.021
Failure to provide financial information promptly for tax assessment may result in penalties.	2.85	1.035
Accounting information should be reliable, or else penalties are incurred	2.83	1.071
Tax authorities use the financial information to determine the amount of tax payable.	2.71	1.039
Tax authorities prescribe specific methods for the reporting of accounting information	2.89	0.991
Tax authorities always stress their information needs and requirements to taxpayers	2.84	1.013
Financial reports are kept because tax authorities will use them in assessing tax.	2.8	1.069
Tax audit is carried out to verify the tax liability	2.64	1.157
Tax authorities carry out random control visits and check the financial reports	2.56	1.178
Awareness of Financial Reporting Regulation
Financial statements for MSMEs must adhere to MPERS.	2.72	1.185
I use MPERS in the preparation of financial statements.	2.24	1.113
MSMEs may use MPERs in preparation of financial statements.	2.65	1.116
Income statement and Balance sheet should be prepared for tax purposes.	2.76	1.095
Business owners should submit the Income Tax Return Form	2.7	1.084
Income Statement and Balance Sheet should be declared in the Tax Return Form.	2.65	1.091
Business documents, records, and business accounts should be kept for 7 years.	2.92	1.096
Financial literacy
I know how to calculate business profit.	3.22	0.832
Business income and expenditure are carefully recorded and monitored.	3.13	0.857
Review the business’s monthly expenses before applying for a loan.	3.2	0.805
New loans were often undertaken to repay existing business debts	2.18	1.213
Close attention is given to the management of financial affairs	3.27	0.795
Long-term financial goals are established, and efforts are made to achieve them	3.25	0.827
Prepare a financial budget to provide information for decision-making purposes.	3.24	0.8
Compare the financial budget with actual results.	3.24	0.786
An investment with a high return is likely to be a high risk.	3.41	0.671
Savings are essential for ensuring financial security.	3.7	0.522
Consider multiple types of loans from various institutions before deciding on a loan.	3.34	0.838
Transactions of the owners are recognized as distinct and separate from those of the business.	3.19	0.98
Personal expenses are not regarded as business expenses.	3.08	1.084
Proper training has been received to ensure timely information is provided.	3.23	0.84

provides the average score and standard deviations (SD) for the survey items. The descriptive statistics indicate that micro-entrepreneurs generally perceive financial reporting practices as important, with the highest mean scores observed for tracking profit and loss (Mean = 3.57, SD = 0.634), improving business performance (Mean = 3.48, SD = 0.714), and comparing actual versus target costs (Mean = 3.49, SD = 0.692). These results suggest that financial statements are primarily utilized for internal decision-making and operational monitoring. Institutional pressures were moderately acknowledged, particularly regarding requirements imposed by tax authorities to maintain reliable records (Mean = 2.83, SD = 1.071) and submit timely financial information (Mean = 2.85, SD = 1.035). Awareness of financial reporting regulations was mixed. While some respondents were aware of general tax documentation requirements (e.g., record retention for seven years, Mean = 2.92, SD = 1.096), there was limited familiarity with the Malaysian Private Entity Reporting Standard (MPERS), with relatively low mean scores (e.g., use of MPERS in practice, Mean = 2.24, SD = 1.113). Financial literacy among respondents was relatively high. Items such as recognizing the importance of savings (Mean = 3.70, SD = 0.522), calculating business profit (Mean = 3.22, SD = 0.832), and preparing budgets for decision-making (Mean = 3.24, SD = 0.800) consistently scored high. Notably, the item “New loans were often undertaken to repay existing debts” recorded the lowest mean score and showed high variability in responses(Mean = 2.18, SD = 1.213), indicating a potential concern regarding financial vulnerability.

Overall, the findings indicate the strong practical orientation of financial reporting among micro-entrepreneurs in Malaysia, particularly in areas related to operational decision-making and performance evaluation. However, notable gaps persist in terms of regulatory awareness and the perceived enforcement of institutional requirements. These insights suggest the need for targeted policy interventions and enhanced financial literacy programs tailored to the micro-enterprise sector.

4.2. Correlation Analysis

The correlation analysis revealed several significant relationships among the study variables (see

Table 4. Pearson Correlation.

	PIFR	IP	AFR	FL	Gender	Edu	Acc	Size	Age
PIFR	1
IP	0.507 ***	1
AFR	0.470 ***	0.803 ***	1
FL	0.628 ***	0.543 ***	0.551 ***	1
Gender	−0.074	−0.043	−0.079	−0.095	1
Edu	0.112	0.189 ***	0.268 ***	0.356 ***	−0.143 **	1
Acc	0.247 **	0.216 ***	0.328 ***	0.198 ***	0.069	0.225 ***	1
Size	0.242 **	0.006	0.046	0.202 ***	−0.135	−0.059	0.146 **	1
Age	−0.064	0.007	0.042	−0.101	−0.070	−0.031	−0.190 ***	0.057	1

Notes: PIFR = Perceived Importance of Financial Reporting; IP = Institutional Pressure; AFR = Awareness of Financial Reporting Regulation; FL = Financial Literacy; Edu = Education level; Acc = Accounting background; Size = Size of Business; Age = Age of Business. *** significant at the 0.01 level, ** significant at the 0.05 level.

). Financial literacy exhibited the strongest positive correlation with the perceived importance of financial reporting (r = 0.628, p < 0.01), underscoring its critical role in shaping micro-entrepreneurs’ attitudes toward financial reporting practices. Institutional pressures from regulatory bodies (r = 0.507, p < 0.01) and awareness of financial reporting regulations (r = 0.470, p < 0.01) also demonstrated moderate positive correlations with perceived importance of financial reporting. In contrast, accounting background (r = 0.247, p < 0.01) and start-up capital size (r = 0.242, p < 0.01) showed weaker but still statistically significant relationships. Meanwhile, education level, gender, and business age were not significantly correlated with the perceived importance of financial reporting, suggesting that these demographic characteristics may have limited direct influence in this context.

While the correlation analysis reveals significant associations between the variables, its explanatory power is limited, as it examines the relationships between independent and dependent variables in isolation, without accounting for the effects of other relevant factors. To address this limitation and provide a more robust examination, a multiple regression analysis was conducted to assess the relationships while controlling for additional variables.

4.3. Multiple Regression Results

The multiple regression analysis explains 48% of the variance in the perceived importance of financial reporting among micro-entrepreneurs, with an adjusted R² of 0.457, indicating a strong model fit (see

Table 5. Results of Multiple Regression.

	Unstandardized Coefficients		Standardized Coefficients
	B	SE	Beta	t
(Constant)	−3.383	1.833		−1.886 **
IP	0.173	0.066	0.242	2.626 ***
AFR	0.003	0.07	0.01	0.011
FL	0.551	0.081	0.486	6.780 ***
Gender	−0.025	0.1	−0.014	−0.248
Edu	−0.169	0.081	−0.125	−2.289 **
Acc	0.145	0.083	0.105	1.745 *
Size of Business	1.008	0.421	0.139	2.396 **
Age of Business	−0.025	0.1	−0.014	−0.248
R2	0.48
Adjusted R2	0.457
F	21.318 ***
Min VIF	1.074
Max VIF	3.284

Notes: IP = Institutional Pressure; AFR = Awareness of Financial Reporting Regulation; FL = Financial Literacy; Edu = Education level; Acc = Accounting background; *** significant at the 0.01 level, ** significant at the 0.05 level, * significant at the 0.10 level.

). The results show that institutional pressures and financial literacy are positively and significantly associated at the 1% level, thus supporting Hypotheses 1 and 3. The education level of micro-entrepreneurs demonstrates a statistically significant relationship at the 5% level; however, the coefficient is negative, indicating an inverse association and thus failing to support Hypothesis 5. Other variables in the model are either statistically insignificant or exhibit only marginal significance (at the 10% level). Therefore, we conclude that H2, H4, H5, and H6 are not supported in this study.

Table 5 also presents the minimum Variance Inflation Factor (VIF) (1.070) and maximum VIF (3.284), indicating that VIF for all independent variables are below the commonly accepted threshold of 10. The VIF values of less than 10 imply that multicollinearity is not a serious concern (Hair et al., 2010). Thus, the regression results do not indicate any issues related to multicollinearity.

5. Discussion and Conclusions

This study investigated the impact of institutional pressure and personal attributes on the perceived importance of financial reporting among Malaysian micro-entrepreneurs. The multiple regression results reveal that financial literacy is the most significant and influential predictor (β = 0.486, p < 0.01), suggesting that micro-entrepreneurs with higher levels of financial knowledge are more likely to value the importance of sound financial reporting practices. The finding is consistent with prior studies that demonstrate financial literacy among managers and business owners is positively associated with business growth because they can effectively use the financial reports, manage their assets and investments effectively, and make sound business decisions (Hussain et al., 2018; Munyuki & Jonah, 2021; Mutegi et al., 2015).

Institutional pressures also have a significant positive effect (β = 0.242, p < 0.01), indicating that institutional coercion, particularly from regulatory bodies like the Inland Revenue Board, enhances the perceived importance of financial reporting. Business owners are incentivized to comply with regulatory requirements primarily to avoid the legal consequences of non-compliance. Under Malaysian tax law, they are required to maintain proper financial records for up to seven years to facilitate potential audits by the Inland Revenue Board (IRB). Failure to comply may result in legal action, including fines of up to RM10,000, imprisonment for up to one year, or both. This finding is consistent with Nalukenge et al. (2012), who reported that regulatory pressure serves as a key driver in improving the quality of financial information among businesses in Uganda. Comparative evidence from Asian countries further underscores the role of institutional pressures and financial literacy, though their effects vary across contexts. For instance, in Thailand, micro-entrepreneurs with higher financial literacy demonstrated better financial management and reporting behaviors (Imjai et al., 2025). However, in Indonesia, while tax regulations significantly influence the operations of MSMEs (Judijanto, 2024), financial literacy was found to have a limited impact on financial reporting quality (Paramitalaksmi & Airawaty, 2024). These comparative insights suggest that although institutional pressures and financial literacy are generally influential across contexts, their specific impact is moderated by country-specific cultural, regulatory, and economic factors.

Interestingly, education level exhibits a significant negative relationship with the perceived importance of financial reporting (β = −0.125, p < 0.05), suggesting that higher general education may not necessarily enhance appreciation of financial reporting, possibly due to limited exposure to accounting or financial management requirements. In contrast, having an accounting background shows a marginally positive effect (β = 0.105, p < 0.10), indicating that specialized knowledge has a more direct influence on perceptions of financial reporting. This finding aligns with prior research showing that entrepreneurs with accounting or business education are better positioned to interpret and apply financial information in decision-making (Hutadjulu & Blesia, 2016). These results highlight the importance of differentiating between general education and domain-specific expertise. For micro-entrepreneurs, the resource-constrained and survival-oriented nature of their businesses may limit the impact of general education, as financial reporting is often viewed as a compliance task rather than a strategic tool. By contrast, accounting knowledge directly enhances the ability to maintain accurate records, comply with regulations, and leverage financial data to support business sustainability. This underscores the crucial role of targeted financial literacy and accounting education initiatives, particularly at the grassroots level, where access to professional advisors is limited. Strengthening such knowledge can significantly improve financial reporting practices and the long-term sustainability of micro-enterprises.

Other independent variables, such as awareness of financial reporting regulations and gender, did not show statistically significant relationships with the perceived importance of financial reporting. This study suggests that mere awareness of financial reporting regulations, without a corresponding understanding of the practical relevance and benefits of accounting, may be insufficient to influence positive attitudes toward financial reporting practices. This finding is likely linked to the profile of the majority of micro-entrepreneurs in the sample, who lack formal training in accounting or business management. As a result, financial regulatory obligations may be perceived as complex and burdensome (Sian & Roberts, 2009; Keasey & Short, 1990), with limited perceived value for day-to-day decision-making (Wijekoon et al., 2021). Furthermore, due to their limited accounting expertise, micro-enterprises often rely on external service providers for accounting or tax purposes, primarily to meet loan application requirements or ensure tax compliance (Nawi et al., 2018; Sian & Roberts, 2009). Consequently, awareness of financial reporting regulations does not necessarily translate into meaningful engagement with reporting practices, as responsibility for compliance is frequently delegated to external professionals rather than undertaken internally by business owners. This finding contrasts with earlier studies such as Jaffar et al. (2011) and the MIA (2017), which reported a positive association between awareness and reporting practices, likely because their samples focused on SMEs more broadly, rather than micro-enterprises specifically. Taken together, these findings highlight the need to strengthen financial literacy among micro-entrepreneurs and streamline financial reporting frameworks, as both measures are critical to enhancing the adoption and perceived relevance of financial reporting practices.

This study also finds that the gender of the micro-entrepreneurs does not significantly influence the perceived importance of financial reporting practices. This result contradicts prior studies that suggest male and female business owners may differ in their responses to regulatory demands and business management practices, which can impact overall firm performance (Fernando et al., 2020; Vershinina et al., 2020). However, this finding should be interpreted with caution, as the sample is disproportionately skewed toward female respondents (76.29% female compared to 23.71% male), which may introduce bias and limit the generalizability of the results. It is therefore plausible that gender-related differences in perceptions of financial reporting are understated in this study. For the control variables, only the size of start-up capital demonstrates a significant positive effect (β = 0.139, p < 0.05), indicating that businesses with greater financial resources may have a higher need for formal financial management practices.

Overall, the findings of this study underscore the importance of enhancing financial literacy and leveraging institutional pressures to foster stronger financial reporting practices within the microenterprise sector. This study makes significant contributions to both academic literature and practice. Theoretically, it extends the existing body of knowledge on financial reporting within the MSME context by demonstrating that institutional pressures, particularly from tax authorities, and the financial literacy of business owners are significantly associated with the perceived importance of financial reporting among micro-entrepreneurs in Malaysia. By focusing on micro-enterprises, this study addresses a critical gap in the literature, where such businesses are often underrepresented despite their economic relevance. Practically, the study provides actionable insights for policymakers and regulatory bodies, notably SME Corporation Malaysia, Companies Commission of Malaysia, and the Inland Revenue Board (IRB). These institutions are well-positioned to design and implement targeted interventions that may enhance financial literacy among micro-entrepreneurs. Initiatives may include structured training programmes, simplified reporting guidelines, and incentive-based schemes to encourage the adoption of sound financial reporting practices. Such efforts not only support regulatory compliance but also strengthen the financial transparency and sustainability of micro-enterprises. Furthermore, the study highlights the importance of micro-entrepreneurs taking greater ownership of their financial competencies. Active participation in capacity-building programmes, whether offered by government agencies or private training providers, can empower business owners to make more informed financial decisions and improve their long-term business viability. Enhancing awareness of the strategic value of financial reporting is essential, not just for regulatory purposes but as a fundamental component of effective business management. To this end, government agencies should prioritise sustained investment in financial education initiatives tailored to the unique needs of the micro-enterprise sector.

Limitations and Future Research

Similar to other studies, this research has several limitations. The small sample size and the use of cross-sectional data restrict the generalizability of the findings, limit insights into temporal changes in financial reporting behaviors, and prevent the establishment of causal relationships. The use of a 4-point Likert scale, while mitigating central tendency bias, may have constrained the ability to capture genuine neutrality. Although this study used both physical and digital surveys to reach respondents, the possibility of non-response bias cannot be ruled out. Another limitation concerns the disproportionate age and gender distribution of respondents, with young and female participants comprising the majority, and most businesses being relatively new. This uneven distribution may mask potential differences and further limit the generalizability of the results.

Future research could address these limitations by employing larger and more diverse samples, adopting longitudinal designs to capture changes over time, and incorporating qualitative approaches to obtain richer, context-specific insights. More balanced sampling strategies are recommended to better assess the effects of gender on financial reporting perceptions. Additionally, examining potential interaction effects between personal characteristics (e.g., education, accounting experience) and institutional pressures (e.g., regulatory requirements) could provide a more nuanced understanding of reporting behaviors. Future research could also consider factors such as bank financing and sector of activity, which may influence reporting practices. Finally, employing Structural Equation Modeling (SEM) could facilitate a more comprehensive analysis of the complex relationships among variables, enhancing the understanding of the determinants of financial reporting among micro-entrepreneurs.