The effect of leverage on performance: Domestically-oriented versus internationally-oriented firms

• We examine the relation between financial leverage and firm performance.
• Leverage is negatively associated with firm performance in the full sample.
• The effect of leverage on performance is negative for the domestically-oriented firms.
• The effect of leverage on performance is positive for the internationally-oriented firms.

This paper examines the relation between financial leverage and firm performance for a panel of 159,375 non-financial firms in Thailand during the financial crisis of 2007–2009. We find that for the full sample, leverage is negatively associated with firm performance. In addition, the effect of leverage on performance is negative for the domestically-oriented firms and is positive for the internationally-oriented firms. Furthermore, firm size moderates the effect of leverage on performance. These results might be driven by the fact that the internationally-oriented firms tend to have a larger pool of resources, knowledge and capability than the domestically-oriented firms.