The purpose of this research was to investigate the leverage-performance relation with moderating firm size in
developing countries like Pakistan. Data were collected from 304 Pakistani non-financial firms for the period
of 2005-2013. It is found that overall leverage-performance relation is negative for all types of firms. However,
such losses are more prominent for small size firms. Results also show that the leverage-performance relation
is nonlinear for medium and large size firms. However, these firms are not targeting optimal level and overleveraging
that ultimately decrease their profits. So, financial managers of small size firms should avoid debt
financing while for large and medium size firms, managers need to adjust their debt ratio to its optimal level.