Influence of tax planning on financial performance of manufacturing companies listed at Nairobi Securities Exchange

Abstract

Taxes form a significant portion of a company’s expenses and in order to increase probable returns, tax planning is vital to financing and investment decisions of an entity. This study sought to find out the influence of tax avoidance on financial performance of all the nine manufacturing firms listed on the Nairobi Securities Exchange during the period 2010-2017. The study was anchored on tax planning theory, capital structure trade-off theory, agency cost theory and political power theory. The study adopted a positivism research philosophy and an explanatory research design. SPSS version 23 was used to analyze data where both descriptive and inferential statistics was done. Multiple linear regression model was adopted to study the association between the variables while utilizing panel data. The study findings showed that there is no significant statistical association between tax planning and financial performance of the manufacturing companies listed in the Nairobi Securities Exchange. The findings indicated that capital intensity, research and development expenditure and company size have a positive insignificant association with financial performance. Further, debt to equity ratio indicated an insignificant negative relationship with financial performance. The study points out that the manufacturing companies should invest more in non-current assets and increase expenditure on the research and development expenditure to realize significant positive impact on financial performance. They should also manage their debt to equity ratios to avoid excess financing costs that may be detrimental to their financial performance.

Integrated Reporting Disclosures and Firm Value of Listed Insurance Companies in Nigeria

“…Hypothesis four shows that there is a positive and significant relationship between corporate size and corporate financial performance of insurance companies in Nigeria. The positive findings between corporate size and corporate financial performance conforms to the findings in the study of Oeta, et al (2019); Timothy, et al (2020) which reveal that corporate size positively affects the value of firms. The findings disagree with the study of Banchuenvijit (2012); Nwaobia, et al (2016) that showed a negative association between corporate size and value of a firm.…”

“…The results contradict the findings of De Jong et al (2011) and Gonzales (2013) revealed that debt positively influences the value of a company. Oeta, et al (2019), Timothy, et al (2020), Izevbekhai & Odion (2018); Razali, et al (2018) findings suggest a negative insignificant relationship between financial leverage and value of a firm.…”

Effect of Tax Planning on Firm Value of Manufacturing Firms Listed At the Nairobi Securities Exchange

“…Market value, otherwise defined as market capitalisation is computed as the product of outstanding shares and market price at a point in time. Companies with higher market capitalisation are considered to have a higher firm value (Oeta et al, 2019). Tobin's Q has also been adopted a measure of firm value in literature (Bhagiawan & Mukhlasin, 2020;Kiesewetter & Manthey, 2017;Nafti, Kateb, & Masghouni, 2020;Omesi & Appah, 2021).…”

The relationship between investment intensity and profitability measures from the perspective of foreign investors

“…First, the previous literature focuses on EBIT and EBITDA as performance metrics but does not use these parameters in investment-intensive firms such as those in this study. The majority of these studies (e.g., Ester and Ballkoci, 2017;Chukwu and Egbuhuzor, 2017;Amoroso et al, 2017;Oeta et al, 2019) used other parameters, such as ROA and ROE, which are calculated and influenced by GAAP rules. To avoid the effect of GAAP parameters on investment, this study uses non-GAAP metrics: EBITDA and EBIT.…”

“…Chukwuma et al (2022) argued that profitability is important for the survival and increase in the scale of business to achieve the final goal of growth. Profitability is measured by many proxies, such as return on assets (Ester and Ballkoci, 2017), return on equity (Chukwu and Egbuhuzor, 2017), operating income (Amoroso et al, 2017), and earnings (Oeta et al, 2019). To the best of the authors' knowledge, only one prior study used a different proxy to measure profitability, that is, earnings before tax, interest, depreciation, and amortization (EBITDA).…”