Effect of Tax Shield Strategies on Corporate Performance of Listed Companies in Kenya

Abstract

Tax efficiency is one of the tools that organizations can use to enhance income levels. They do not only pursue profit targets but also concentrate on upsurging the value of the businesses and thus benefit the shareholders of the company. Tax sizing tactics are one of the proven tax crimes used by companies. The financial performance of the Nairobi Stock Exchange has been inconsistent over the years. Thus, the study examined the impact of tax shield strategies on the corporate performance of listed companies in Kenya. This study gave focus on the extent to which depreciation, interest deductions and amortization affect the financial healthiness of listed companies in the republic of Kenya. Pecking order theory, organization theory and marketing theory simultaneously guided this research. The research espoused a descriptive research design, targeting 65 establishments listed on the Nairobi Security Exchange. Secondary data was used in the inquiry. Data was scrutinized using Stata software version 14.0. Both descriptive and inferential statistics were used in the analysis of the data. The study concluded that there is a noteworthy link between interest deductions and corporate performance of listed corporations in Kenya. There is a significant relationship between depreciation and financial health of listed companies. The nexus between amortization and firm performance is positive and beneficial. There is a significant relationship between regulatory requirement and the productivity of listed companies. Firm size had a positive and statistically significant relationship with financial health of listed businesses in Kenya. The study recommends that listed firms should strategically utilize interest deductions as a means to improve tax efficiency and management of cash flow. In addition, firms should make good use of depreciation as a strategy to enhance their performance by reducing taxable income while supporting long-term asset value. Listed firms ought to leverage on amortization to enhance firm performance by managing the costs associated with intangible assets. All listed companies should monitor compliance as a way to improve business performance by building stakeholder trust and reducing operational risks. To access opportunities, publicly traded companies need to leverage economies of scale, business operations and resources, and use their scale to improve the company's operations.