Tax Planning, Firm Performance and the Moderated role of Dividend Policy: Evidence from East African Countries

Abstract

This study aims to explore the impact of tax planning on the firm’s value with the moderated effect of dividend policy. The study has drawn a unique and limited explored sample of non-financial listed firms in East African Countries’ stock exchanges. It covers a period of eleven years (2009 – 2019). The tax planning proxy was determined using the book tax difference, while firm performance was measured using return on assets (ROA) and Tobin Q. The Dynamic panel system (GMM) was employed to establish the causal relationship between variables. The robustness check on GMM results was also conducted using OLS and FEM. The results of the study showcase that tax planning positively affects a firm’s values. The findings indicate that tax planning activities in EAC partner state aim to achieve corporate goals, not opportunistic managerial ones. However, the study’s findings reveal a significant moderated role of the dividend policy on the linkage between tax planning and firm performance of the EAC-listed firms. This study contributes to the existing literature by providing additional insights into taxation and corporate governance perspectives. The findings also have practical implications for tax administrators, policymakers, and shareholders