The Effect of Leverage on Performance: Domestically-Oriented vs. Internationally-Oriented Firms

Research in International Business and Finance, Vol. 34, 2015, pp. 265-280

37 Pages Posted: 17 Feb 2014 Last revised: 30 May 2015

See all articles by Chaiporn Vithessonthi

Chaiporn Vithessonthi

Sunway University

Jittima Tongurai

Graduate School of Business Administration, Kobe University

Date Written: May 2, 2014

Abstract

This paper examines the relation between financial leverage and firm performance for a panel of 159,375 (mostly private) non-financial firms in Thailand during the global financial crisis of 2007-2009. We find that leverage is negatively associated with firm performance in the full sample analysis. However, when we divide the sample into domestically-oriented firms and internationally-oriented firms, the effect of leverage on performance is negative for the domestically-oriented firms and is positive for the internationally-oriented firms. In addition, firm size moderates the effect of leverage on performance. That is, for both the domestically-oriented firms and the internationally-oriented firms, the impact of leverage on performance is substantially larger in magnitude for the larger firms than for the small firms.

Keywords: financial leverage; firm size; internationalization; firm performance; Thailand

JEL Classification: E2; E4; G3; G32

Suggested Citation

Vithessonthi, Chaiporn and Tongurai, Jittima, The Effect of Leverage on Performance: Domestically-Oriented vs. Internationally-Oriented Firms (May 2, 2014). Research in International Business and Finance, Vol. 34, 2015, pp. 265-280. Available at SSRN: https://ssrn.com/abstract=2396753 or http://dx.doi.org/10.2139/ssrn.2396753

Chaiporn Vithessonthi (Contact Author)

Sunway University ( email )

No. 5, Jalan Universiti
Bandar Sunway, Selangor Darul Ehsan 47500
Malaysia
+60 3 7491 8622 (Phone)
+60 3 5635 8633 (Fax)

Jittima Tongurai

Graduate School of Business Administration, Kobe University ( email )

School of Business Administration
2-1 Rokkodai, Nada
Kobe, Hyogo 6578501
Japan
81 78 803 6941 (Phone)
81 78 803 6941 (Fax)

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