Abstract
The study investigates the effect of tax savings on the capital structure of free zone companies in Ghana. Using a panel regression model, the study specifically examines the determinants as well as the effect of capital structure on the financial performance of these companies. The study used data from annual reports of these companies from 2009–2012. The results of the study show that tax has a positive and significant relationship with the capital structure of the free zone companies, and even though the companies do not pay corporate tax for the first 10 years, they operate in Ghana and pay the lowest corporate tax after the first 10 years. The regression results also show that the age of the company, size, profitability and company risk are important in influencing the decisions on the capital structure of the free zone companies. Capital structure of the companies has an inverse relationship with return on asset, which measures the financial performance of these companies. The study provides useful recommendations for policy direction and to managers of these companies.
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