Do tax shields of debt and non debt impact on firms’ performance? Evidence from Sri Lankan Land and property sector

Vinasithamby Sritharan

Abstract


Abstract

Purpose- The aim of this research  study is to investigate whether the debt provide any tax benefits as debt tax shield and non-debt tax shield through financing decisions and how much they add to the firm’s value in case of Sri Lankan land and property sector firms.

Design/methodology/approach - Related capital structure theories which are from different scholars are analyzed for the purposes of find out the trend of those two types of tax shields and create a proper investigate able scheme regarding the impact of debt tax shield and non-debt tax shields on firm’s performance of Sri Lankan land and property sector firms for the time period from 2008 to 2012.

Findings - The analysis results reveal that capital structure measure of total debt ratio is negatively related to performance measure of return on assets in both fixed and random regression models significantly. Further debt tax shield and non-debt tax shield have negative relation with performance measure of return on assets under the both fixed and random regression models, however both models reveal statistically insignificant, so both tax shields haven’t any significant impact on firm’s performance measure of return on assets.

Practical implications – This research explores the impact of tax shields and leverage on the firm’s performance of Sri Lankan land and property sector firms and laid some contribution to the existing literature as Sri Lankan firms’ context. Moreover that observed findings could assist the corporate sector management as well as policy makers to take appropriate decisions in their fields.

Originality/value - Based on the knowledge of authors, this is the first study that reveals the impact of debt tax shield and non-debt tax shields and leverage on the firm’s performance of Sri Lankan land and property sector firms.  Moreover, impact of debt tax shield and non-debt tax shield on performance is misty, hence this study continue that search by the help of Sri Lankan land and property sector firms data.

 

Keywords: Debt tax shield, Non debt tax shields, Firm’s performance, Land and property, and Sri Lanka


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ISSN : 2251-1555