Abstract
Taxes form a significant portion of a company’s expenses and in order to increase probable returns, tax planning is vital to financing and investment decisions of an entity. This study sought to find out the influence of tax avoidance on financial performance of all the nine manufacturing firms listed on the Nairobi Securities Exchange during the period 2010-2017. The study was anchored on tax planning theory, capital structure trade-off theory, agency cost theory and political power theory. The study adopted a positivism research philosophy and an explanatory research design. SPSS version 23 was used to analyze data where both descriptive and inferential statistics was done. Multiple linear regression model was adopted to study the association between the variables while utilizing panel data. The study findings showed that there is no significant statistical association between tax planning and financial performance of the manufacturing companies listed in the Nairobi Securities Exchange. The findings indicated that capital intensity, research and development expenditure and company size have a positive insignificant association with financial performance. Further, debt to equity ratio indicated an insignificant negative relationship with financial performance. The study points out that the manufacturing companies should invest more in non-current assets and increase expenditure on the research and development expenditure to realize significant positive impact on financial performance. They should also manage their debt to equity ratios to avoid excess financing costs that may be detrimental to their financial performance.
Highlights
The manufacturing sector is a key contributor to economic development of any nation
In a study of the companies listed in China securities exchange, Liu and Cao (2007) found that capital intensity had no significant relationship with tax planning agreeing with the study findings
The study agreed with the findings of Githaiga (2013) who conducted a study on the effect of tax planning using capital allowances on foreign direct investment where the findings indicated no significant association between tax planning and foreign direct investment for companies listed in the Nairobi securities Exchange
Summary
The manufacturing sector is a key contributor to economic development of any nation. In developing countries, greater emphasis is given to the manufacturing sector to enable attainment of middle-income status through provision of incentives geared towards encouraging investment in the sector locally and internationally through foreign direct investments. Given the weight manufacturing sector is accorded towards the realization of vision 2030 coupled with the worrying financial performance trends, it is crucial that this study be carried out to establish the influence of tax planning on their financial performance with specific aims to test the hypothesis: (i) There is no significant relationship between capital intensity and financial performance of manufacturing companies listed on the Nairobi Securities Exchange, (ii) There is no significant association between capital debt to equity ratio and financial performance of manufacturing companies listed on the Nairobi Securities Exchange, (iii) There is no relationship between research and development expenditure and financial performance of companies listed at the Nairobi Securities Exchange and (iv) There is no significant relationship between company size and financial performance of companies listed at the Nairobi Securities Exchange. Section five discusses the results and discussions while the sixth section presents the conclusions made
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