Corporate income tax, asset turnover and Tobin’s Q as firm performance in Pakistan: Moderating role of liquidity ratio

Abstract

This article finds the impact of corporate income tax and asset turnover on financial performance of the corporate sector with panel data in Pakistan. Panel data of sixteen non-financial firms listed in Pakistan Stock Exchange during the time period from 2006 to 2021 are used for analysis. Panel data are collected from the Data Services & Innovations Department, State Bank of Pakistan (SBP). The fixed effect model (FEM) estimates are found more appropriate for estimation on the basis of Hausman test. The study utilizes Tobin q as an indicator of firm financial performance. Findings of study explain that corporate income tax effects firm financial performance positively. However, this impact is not significant. Further, the impact of asset turnover is negative and significant. Negative relation is found between liquidity ratio and firm financial performance. It indicates that a lesser amount of liquid assets evade from expensive borrowing. Tax structure is important for firm financial growth and performance. The improvements in corporate tax structure to boost the investment in the corporate sector of Pakistan are recommended. Further, sales of Pakistani firms do not meet the neck and neck of firm’s assets. Firm is advised to improve product quality for its sale promotion and government can play its role in this regard by devising export policy.