Effects of Taxation on the Financial Health of Transport Enterprises in Mombasa County – Kenya
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Date
2025-07
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IJARKE Business & Management Journal
Abstract
Interest on debt is generally tax-deductible, unlike dividends, it is expected that a company's tax rate will affect its debt financing decisions. Consequently, higher tax rates should lead to greater advantage from interest tax shields, thereby promoting debt financing over equity financing. Debt financing is a type of external financing that allows businesses to raise additional capital after they have been established. This inquiry aimed to scrutinize how borrowed capital influences the fiscal efficacy of transportation enterprises in Mombasa County of transportation enterprises in Mombasa County. Specifically, the study sought to ascertain the effect of taxation on financial performance of transportation enterprises in Mombasa County. The research was anchored on trade-off theory and utilized a cross-sectional research design. The intended group consisted of 190 transport companies in Kenya, all associated with the Kenya Transporters Association. A sample size of 66 companies was calculated using Fisher's statistical formula and selected through a purposive sampling technique. Questionnaires served as the primary data collection instrument, supplemented by secondary data sheets to enrich the gathered information. The validity was confirmed via expert reviews and pre-testing, while data reliability was ensured through retesting and the application of Cronbach's Alpha Coefficient. Quantitative analysis of the gathered data was performed using SPSS v.26. This comprises descriptive statistics, including standard deviation and central tendency measures like mean, frequencies, and percentages. Inferential statistics was applied to conduct multiple regression and correlation analyses, which determine the relationship among the variables under study. The study findings indicated that taxes exerted a notable influence on how companies secured debt financing. Statistical analysis (specifically, regression) demonstrated a direct and statistically significant relationship between taxation and a firm's overall performance. The study established that tax burdens negatively affect financial performance.
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