Corporate Financing Decisions, Taxes and Firm Value: A Critical Literature Review
Journal Title: Scholars Journal of Economics, Business and Management - Year 2017, Vol 4, Issue 10
Abstract
Abstract:The main goal in corporate financing decisions is firm value maximization and therefore, there must be a link between firm value and corporate finance decisions. This study critically looks at literature on the relationship among taxes, corporate financing decisions, and firm value. The study arrives at different results. Different researchers utilized different methodologies and approaches to analyse the relationship among corporate financing decisions, taxes and firm value. Which could have contributed to the contradicting results? It is evident from this study that companies often face primarily, two corporate financing decisions. These decisions are what proportion of profit should be channeled back into the business instead of paying them out as dividends and how much deficit they should finance by borrowing instead of issuing out equity. These two questions are very important for all firms in making financial decisions. Much research has been carried out to establish the relationship among corporate financing decisions, taxes and firm value and how the relationships impact each other. However, opinion is not unanimous on how the interactions of corporate financing decisions and taxes contribute or affect firm value, as such; this is an area that could profit from further research. This study relied solely on secondary sources, of which majority focused on listed firms. Most studies have been done on listed firms as opposed to non-listed firms. At the same time, there is little information on how elements of tax, like debt tax shield, interest tax shield and liquidity, affect the value of a firm and its corporate financing decisions. This study recommends that further research be done on the relationship among taxes, corporate financing decisions, and firm value on firms that are not listed at the security exchanges. This will provide a platform to do comparison and see whether their behaviors are similar to those of listed firms. Keywords:corporate financing, tax, profit, security exchange.
Authors and Affiliations
Ooko Joab
Keywords
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