Taxation Structure and Firm Characteristics as Drivers of Corporate Performance on the Zimbabwe Stock Exchange
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Abstract
Taxation revenues generated from corporations are critical in funding public infrastructure and national development, which is vital for firm performance; however, fiscal efforts to maximize taxation collection have threatened industries’ competitiveness. The study evaluates the impact of taxation structure and firm characteristics on the performance of companies listed on the Zimbabwe Stock Exchange for the two years ended 31 December 2018. Taxation structure is measured using selected individual taxation heads. Firm performance is measured by the firm’s return on assets. A causal research design was applied under a theoretical framework encompassing the taxation structure, management motivations and internal resources, business operations under public scrutiny and the expectations raised on the influence of external forces, structures and relationships. The results indicate that pay as you earn, corporate income taxation and customs and excise duty hinder firm performance whereas, although value added tax and deferred taxation reduce performance, the relationships are weak. Political pressure by the industrial society appears to have failed to increase social services and infrastructural development as public income increased; political power effected through various interest groups, affluent individuals, corporations and political elites appears to have limited taxes for larger firms. Although total assets are insignificant on the whole, the result confirms the existence of unmeasured and unrecorded intangible assets that may be driving profitability, confirming the resource-based view approach on heterogeneous assets. In addition, the results indicate that liquidity is positive and significant, whilst leverage hinders performance; industry effects are insignificant. For the majority of firms, regardless of industry, liquidity has had the most significant impact on performance, in particular when coupled with effective financial relations under the resource-based view of the firm. This result may be expected in an environment characterized by inflation and currency arbitrage opportunities.