The effect of firm size on the leverage–performance relationship during the financial crisis of 2007–2009

We draw on a comprehensive set of data of all registered firms in Thailand to examine whether firm size affects the relation between leverage and operating performance during the global financial crisis of 2007–2009. From a data set of 496,430 firm-year observations of a sample of 170,013 mostly private firms, we find that the magnitude of the effect of leverage on operating performance is non-monotonic and conditional on firm size. While our panel regression results indicate that leverage has a negative effect on performance across firm size subsamples, our year-by-year cross-sectional regression results show that the effect of leverage on performance is positive for small firms and is negative for large firms. Our findings show that about 75% of Thai firms in our sample appear to have managed to get through the global financial crisis on the basis that they do not have to simultaneously deleverage and liquidate their assets.