IIARD International Institute of Academic Research and Development

Journal of Accounting and Financial Management (JAFM )

E-ISSN 2504-8856
P-ISSN 2695-2211
VOL. 10 NO. 2 2024
DOI: https://doi.org/10.56201/jafm.v10.no2.2024.pg33.46

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Do the Tax Shields affect Corporate Financing Decisions?

James A. Sarakiri (Ph.D)

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Abstract

This study investigates the debt and non-debt tax shields and their impact on capital structure of firms listed under the food and beverages sector of the Nigeria Stock Exchange. The empirical analysis is based on the differenced GMM framework which controls the potential endogeneity between capital structure and its determinants through instrumental variables while using ten (10) years panel data covering the period 2011 to 2020, Our results show that non-debt tax shield, measured by depreciation to total assets ratio, has no significant effect on debt-equity ratio as a proxy for capital structure. On the contrary, debt tax shield, measured by corporate income tax, has a highly significant but negative effect on capital structure. Hence, for listed firms in the Nigerian food and beverages industry, we do not find evidence that the relationship between tax shields and capital structure is governed by the trade-off theory. These results hold controlling for other firm-specific factors such as profitability, growth opportunities and firm size.

keywords:

Capital structure, non-debt tax shield, debt tax shield, D-GMM

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References:

Allen, D. E., & Mizuno, H. (1989). The de terminants of corporate capital structure: Japanese
evidence. Applied Economics, 21(5), 569-585.
Ahmad, R., & Etudaiye-Muhtar, O. F. (2017). Dynamic model of

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