The moderating role of firm size on leverage-performance association: case of the peripheral countries of the Eurozone

Abstract

The aim of this study is to analyze the association between leverage and performance by using the size of the firm as a moderating variable by integrating the crisis 2007-2009. We used 3047 observations of non-financial firms belonging case of the peripheral countries of the Eurozone (Greece, Ireland, Portugal, Spain, and Italy) during 2003-2013. we find that the relationship between leverage and performance is negative and significant. Similarly, according to the different categories of firm size the result indicates the effect of leverage on corporate performance depend to by size of firm. The relationship is non-monotonic  . During financial crisis, the relationship between performance and leverage is negative for the very small and medium, firm, but positive for very large firm. Furthermore, the performance change has a negative and significant impact for all categories of firm size. Firms prefer self-financing to finance their operations . The large firms are more profitable because they have more resources, a better risk diversification, complex information systems and a better expenses management. Then, we mentioned that the performance of firms in the peripheral countries of the Eurozone will increase when there is strong economic growth through the higher investment opportunities. These firms have low liquidity because the higher investments in current assets tend to induce the maintenance costs and does not contribute to generate profitability.