dc.contributor.author | Nyang’oro, Owen | |
dc.date.accessioned | 2013-05-08T07:58:36Z | |
dc.date.available | 2013-05-08T07:58:36Z | |
dc.date.issued | 2003-09 | |
dc.identifier.uri | http://erepository.uonbi.ac.ke:8080/xmlui/handle/123456789/20114 | |
dc.description.abstract | This paper looks at the impact of tax on the capital structure of companies listed on the
Nairobi Stock Exchange (NSE). The study adopts the static trade-off theory (STO) of capital
structure given that this theory incorporates the impact of taxes on capital structure. The main
motivation for the study is the Modigliani-Miller (M-M) argument that in the presence of
corporate taxes, the firm's value is positively related to its debt. Hence it addresses the
question of whether the capital structure of companies change following a change in the tax
rate.
Panel data analysis of a sample of 20 listed non-financial companies is used to
determine the impact of tax on capital structure covering the period 1993 to 2001. The main
proxies for the tax effect considered include the marginal effective tax rate, and non-debt tax
shields as depreciation and the tax loss carry forward. The marginal tax rate is proxied using
the average effective tax rate. We include variables likely to determine the capital structure of
firms such as liquidity, tangibility, growth opportunities, profitability, dividend yield and size
of the firm to control for their effects. We use the Hausman test to identify the best model and
the fixed effects model is found to be the best in estimating this situation.
The results show that the tax rate is significant in determining the leverage of firms but
shows unexpected (negative) sign. Non-debt tax shield variable is found to be insignificant in
determining the leverage of these firms. Profitability, tangibility and growth opportunities are
found to be significant in explaining the capital structure of these firms. The firms are also
found to adjust their leverage to the target debt ratio while in the process incurring positive
adjustment costs. This implies that the firms will not at any time fully adjust to the target debt
level due to the presence of the adjustment costs. Other factors found to be relevant in
determining the capital structure in the study are tangibility, growth and profitability. | en |
dc.description.sponsorship | University of Nairobi | en |
dc.language.iso | en | en |
dc.subject | Capital structure | en |
dc.subject | Taxation | en |
dc.subject | Kenya | en |
dc.subject | Nairobi Stock Exchange (NSE) | en |
dc.subject | Static trade-off theory (STO) | en |
dc.subject | Non-debt tax shield | en |
dc.subject | Modigliani-Miller (M-M) | en |
dc.title | Tax and Capital Structure: the Case of Listed Companies in Kenya. | en |
dc.type | Thesis | en |
local.publisher | Department of Economics, University of Nairobi | en |