This paper examines the effect of debt financing on firm performance using a dataset created out of 352 firms listed on Vietnam's stock exchanges in 2015-2019.The Two-step System Generalized Method of Moments is used to tackle the endogeneity, unobserved heterogeneity, and autocorrelation problems in our estimation model. The findings reveal a significant negative relationship between debt financing and corporate performance. High levels of debt result in suboptimal investment due to the fear of default and higher costs. Clients often doubt the product quality of firms with high debt, easily switching to other sellers who benefit them the most. Accordingly, firms with high debt have to devote more resources to retaining clients and attracting new ones. Besides, the outcomes also indicate an inverted U-shaped nexus between competition and performance. Firm growth boosts performance, while the fixed assets-to-sales ratio hurts it significantly. Given the results, this paper proposes recommendations regarding the usage of debt financing to improve firm performance.