Impact of Tax Reforms on Performance of Firms Listed at the Nairobi Securities Exchange

Abstract

This study examined the impact of tax reforms on the financial performance of firms listed on the Nairobi Securities Exchange (NSE). The study was anchored on theoretical foundations from investor sentiment theory, capital asset pricing model, and efficient market hypothesis. Data from 56 listed firms over five years (2017-2021) were analysed. The results revealed that tax reforms positively influenced financial performance, emphasizing the potential of tax-related policies to enhance economic growth and firms' financial outcomes. Firm size was found to have significant effect on financial performance, which indicated that larger firms consistently demonstrated better financial performance due to economies of scale and resource allocation advantages. Interestingly, liquidity, GDP, and inflation were found to have no statistically significant impact on financial performance. The study suggested that firms should strategically allocate resources, prioritizing tax-related initiatives and recognizing the pivotal role of size in shaping financial outcomes. Smaller firms, in particular, were encouraged to explore strategies for scaling up and improving their market presence. The research underscored the importance of tax reforms and firm size in shaping financial performance, offering valuable insights for both policymakers and businesses.