TAX SHIELDS AS DETERMINANTS OF CORPORATE FINANCING DECISIONS: AN INVESTIGATION

Abstract

This study investigates the debt and non-debt tax shields and their impact on capital structure     of firms listed under the food and beverages sector of the Nigeria Stock Exchange. The empirical analysis is based on the differenced GMM framework which controls the potential endogeneity between capital structure and its determinants through instrumental variables while using ten (10) years panel data covering the period 2011 to 2020, Our results show that non-debt tax shield, measured by depreciation to total assets ratio, has no significant effect on debt-equity ratio as a proxy for capital structure. On the contrary, debt tax shield, measured by corporate income tax, has a highly significant but negative effect on capital structure. Hence, for listed firms in the Nigerian food and beverages industry, we do not find evidence that the relationship between tax shields and capital structure is governed by the trade-off theory. These results hold controlling for other firm-specific factors such as profitability, growth opportunities and firm size.