Effect of Tax Benefits on Value of Firms Listed in Nairobi Securities Exchange

Abstract

This study measured the effect of financing decisions determinant of tax benefits on the value of the firm utilizing financial statements of listed firms which covered  a period of 10 years from January 2008 to December 2017. The study was anchored on Net income approach and Modiglini-Miller theories of finance.  Positivisim research philosophy was adopted while cross sectional and explanatory research designs were applied. Document guide analysis was used to extract secondary data from published financial statements of the respective companies for the period of study. Face validity of the research instrument was ensured through peer reviews while content validity was ensured by using the expert opinion of the University Supervisors. Data was analyzed using descriptive statistical methods of mean, percentages and standard deviation. Inferential statistical methods of stepwise regression analysis was adopted in analysis of the panel data. The results were presented in the form of tables. The findings revealed that tax benefit had significant effect on value of the firms listed in Nairobi Securities Exchange. In conclusion however tax benefits as measured by depreciation tax benefit had more impact on the value of listed firms in agricultural, energy and petroleum sectors however when interest tax benefit is the indicator for tax benefits then firms in commercial and services, construction and allied, insurance, investment and telecommunication sectors revealed greater effect of tax benefit on value of firm. It was recommended that tax benefits be traded off with interest expense and corporate taxes be evaluated against interest rates to optimize tax benefits.

Keywords: Tax benefits, value of firm, depreciation tax benefit, interest tax benefit

DOI: 10.7176/RJFA/12-1-04

Publication date: January 31^st 2021