Abstract
The global financial crisis (2007-2009) provides us good opportunity to examine the behavior of leverage
and value of financially constrained and unconstrained firms during the crisis period. Using data on 4865
private firms, results shows that financially constrained firms were squeezed during the credit retrenchment
period. The leverage ratio, investment and performance of these firms were adversely affected due to
unavailability of credit. The unconstrained firms, on the other hand, which face less market frictions were
not much exposed to the credit shocks.
