The Effect of Corporate Taxation on Financing Decision: Evidence from Ethiopian Food and Beverages Companies

Author(s): Ismael Hussein Malela

Abstract:

This study examines the effect of corporate taxation on the financing decisions of listed companies in the Ethiopian Food and Beverage companies. Data for the study was collected from documentary sources consisting of the annual reports and accounts of the sampled companies. Being both time series and cross-sectional, Panel data methodology was adopted for data analysis, The Ordinary least squares, Fixed effects, and Random effects were used to estimate the regression model. It is found that despite the tax benefits of debt, the companies were generally low-geared; however, corporate taxation influences their financing decisions. The findings of this study lend weight to both the pecking-order and trade-off models as a fitting description of the capital structure behavior of the companies. The study recommends that the companies should not over-rely on their retained earnings as a source of finance, but explore other external sources, particularly the use of debt to benefit from its tax advantage.

Keywords: Corporate taxation, capital structure, trade-off theory, pecking order theory

Pages: 01-08      |       76 View       |       13 Download