Article,
Corporate Taxation and the Trade-Off Theory: A Dynamic Fixed Effects Approach
Central Asian Journal of Innovations on Tourism Management and Finance, 4 (1): 50-58 (January 2023)
Abstract
The study focused predominantly on the validity test of the trade-off theory in the Nigerian context. In testing the validity of the test, the study sampled six (6) Deposit Money Banks listed on the Nigerian Stock Exchange from 2011 to 2020. The study used fixed and dynamic approach to examining the trade-off theory. The method adopted was the fixed effect estimator and system generalized methods of moment. Theoretically, the trade-off theory suggests a positive impact of profitability and company size on financial leverage. The study measured financial leverage using ratio of total debt to total asset. The study found strong evidence for validation of the static trade off theory, indicating its practice in Nigeria. Notably, we found a positive and significant relationship between company size and financial leverage. Similarly, profitability has positive and significant effect on financial leverage. It was recommended that DMBs external source their finance if internal means are not sufficient to finance their operations.
