Influence of tax planning on financial performance of manufacturing companies listed at Nairobi Securities Exchange

Simeon Oeta, Richard Kiai and Joseph Muchiri
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Simeon Oeta: School of Business, Department of Business and Economics, Karatina University, P.O Box 1957-10101, Karatina, Kenya
Richard Kiai: School of Business, Department of Business and Economics, Karatina University, P.O Box 1957-10101, Karatina, Kenya
Joseph Muchiri: School of Business, Department of Business and Economics, Karatina University, P.O Box 1957-10101, Karatina, Kenya

International Journal of Research in Business and Social Science (2147-4478), 2019, vol. 8, issue 6, 262-270

Abstract: Taxes form a significant portion of a company’s expenses and in order to increase probable returns, tax planning is vital to financing and investment decisions of an entity. This study sought to find out the influence of tax avoidance on financial performance of all the nine manufacturing firms listed on the Nairobi Securities Exchange during the period 2010-2017. The study was anchored on tax planning theory, capital structure trade-off theory, agency cost theory and political power theory. The study adopted a positivism research philosophy and an explanatory research design. SPSS version 23 was used to analyze data where both descriptive and inferential statistics was done. Multiple linear regression model was adopted to study the association between the variables while utilizing panel data. The study findings showed that there is no significant statistical association between tax planning and financial performance of the manufacturing companies listed in the Nairobi Securities Exchange. The findings indicated that capital intensity, research and development expenditure and company size have a positive insignificant association with financial performance. Further, debt to equity ratio indicated an insignificant negative relationship with financial performance. The study points out that the manufacturing companies should invest more in non-current assets and increase expenditure on the research and development expenditure to realize significant positive impact on financial performance. They should also manage their debt to equity ratios to avoid excess financing costs that may be detrimental to their financial performance. Key Words:Tax Planning, Capital INtensity, Research and Development Expenditure, Company Size, Debt to Equity Ratio

Date: 2019
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