The relationship between market capitalization and taxes for firms listed at the Nairobi Stock Exchange
Mutuku, Mercy M
MetadataShow full item record
Investment in the capital market decisions are among the most important decisions of firms. Investment decisions are part of economic policy debates as economic growth heavily depends on investment. The starting point when analyzing investment in the capital market is usually that a firm's investment should only depend on the profitability of its investment opportunities. Investment in the capital market depends on profitability and cash flow. Tax plays an important role in market capitalization. Effective tax planning reduces the present value of tax payments and generally increases the after-tax rate of return to investors in a firm. Taxes affect financing choices, organizational form and restructuring decisions, payout policy, compensation policy and risk management decisions. Increased levels of tax enforcement may raise firm value, despite the firm's increased tax payments. As a capital market institution, the Nairobi Stock Exchange plays an important role in the I'rocess of economic development. It helps mobilize domestic savings thereby bringing about the reallocation of financial resources from dormant to active agents. Long-term investment in the capital market is made liquid as the transfer of securities between shareholders is facilitated The main objective of the study was to establish the relationship between market capitalization and taxation for firms listed at the Nairobi stock exchange (NSE). The study adopted a causal study research design. The target population for the study was corporate listed at the Nairobi Stock Exchange. The study relied on secondary data obtained from the published audited financial statements for the sample period 2006 to 2010. Quantitative data was analyzed using descriptive statistics and qualitative data was analyzed using content analysis. The study concluded that increase in market capitalization corresponds to increase in tax collected The study recommend that firms listed at the NSE should diversify their tax plans to allow realization of full benefit of available taxation schemes, carry out monitoring and evaluation of risks likely to shape their decision on market capitalization and come up with appropriate policy interventions to safeguard their investments and continue to improve their business performance.