Corporate tax on debt financing for non financial firms listed in the Nairobi securities exchange

Abstract

The study focuses on debt capital financing by non-financial quoted firms. The study therefore sought to find out the effect of corporate tax on debt capital financing by non-financial firms listed in the Nairobi Securities Exchange. The research methodology included all the non-financial firms listed in the Nairobi Securities Exchange with secondary data sourced from the Nairobi Securities Exchange Handbook from 2009 to 2012. The variables used are the determinants of debt such as equity, taxation, total assets, and earnings after tax and size as dependent variables against debt capital as independent variable. The data analysis used regression analysis to build the relationship. The findings were that equity had a negative significant relationship with debt whereas taxation had a positive insignificant relationship with debt. Thus as levels of taxation increases debt levels also increases. Total assets, earnings after tax and size on the other hand have a positive insignificant relationship with debt. In conclusion debt has a taxation benefit in terms of debt tax shield and thus should be embraced by managers as an alternative source of financing as opposed to equity