Leverage and Firms’ Vulnerability: Do Crises and Industry Matter?

This study aims to test whether a firm with a higher degree of leverage is more likely to be vulnerable during the financial crisis. The research sample comprises non-financial firms in Indonesia, Malaysia, and Korea during the period 2007-2019. Besides considering the duration and type of industry in comparing the effect of leverage, this study utilizes the pre-crisis period to determine the vulnerability. Using logistic regression, the result indicates that a higher degree of leverage is more likely to reduce a firms’ financial health as expected, but surprisingly the effect is higher during the industry crisis than the global financial crisis. Furthermore, the nature of the industry provides different effects of leverage on firms’ vulnerability. A further concern of the industry characteristic is needed, especially the new and emerging industries, particularly in evaluating and crafting regulation relates to leverage. Additional tests explore channels through which leverage generates these effects.