Effect Of Tax Avoidance On Value Of Financial Firms Listed At The Nairobi Securities Exchange

Abstract

While tax consequences are an inspiring factor in most corporate resolutions, managerial actions that are only designed to decrease corporate tax duties are perceived as a rising significant aspect of corporate activities. Tax avoidance may be inspired by various reasons but the magnitudes of such acts can either be negative or positive. The goal for the research study was assessing effect of tax avoidance on value of financial firms on the NSE. The population for the research was all 17 financial firms of the NSE. Predictor variable in this research was tax avoidance, x evaluated, by effective tax rate (tax expense divided by gross profit). The control variables for this study were liquidity as measured by current ratio, leverage and evaluated by debt ratio and dividend payout ratio as measured by the ratio of dividend per share to earnings per share on an annual basis. Firm value was the dependent variable and was measured by the ratio of market value of equity to book value of equity. Secondary data was collected over five years (January 2014 - December 2018) annually. Descriptive cross-sectional research design was used for the research to assess the association between the variables. Data analysis was done using SPSS software. The results of the study produced R-square value of 0.243, meaning that 24.3 percent of change of value among financial companies can be explained by the four selected independent variables while 75.7 percent in the variation in value of financial firms listed at the NSE was associated with different frameworks which are not highlighted. This research showed independent variables had a moderate association with firm’s values (R=0.493). ANOVA results indicate the F statistic was substantial at 5% level with p=0.000. In summary, the framework was the best for explaining the correlation among the chosen variables. Findings also showed liquidity gave positive and statistically significant values for the research. Tax avoidance, dividend policy and leverage produced statistically insignificant values for this study. This research suggests that listed financial companies ought to focus on liquidity positions as liquidity was found to substantially affect the value of financial companies listed in NSE.