CORPORATE TAX REFORM AND CAPITAL STRUCTURE DECISIONS: EFFECTS ON FINANCING AND DIVIDEND POLICY

Abstract

This study examines the implications of corporate tax reforms on capital structure
decisions, financing choices, and dividend policies in Nigeria under the current
administration. With significant fiscal policy adjustments implemented to broaden
the tax base and enhance revenue mobilization, the research investigates how
changes in corporate taxation influence firms’ leverage, cost of capital, investment
behaviour, and distribution of earnings to shareholders. Using a mixed-methods
approach that combines quantitative analysis of firm-level financial data with
qualitative insights from industry stakeholders, the study finds that heightened tax
burdens and altered tax incentives have a measurable impact on corporate finance
strategies. Specifically, higher effective tax rates tend to constrain internal
financing, prompting firms to adjust their debt–equity mix toward higher leverage
or to retain earnings to meet operational needs. Moreover, dividend payout patterns
show sensitivity to after-tax profitability, as firms balance shareholder returns with
the need to preserve cash flow. The findings contribute to the literature on tax policy
and corporate financial management by highlighting the trade-offs firms face in
adapting to evolving tax environments. The study’s results have practical
implications for policymakers aiming to harmonize tax reforms with corporate
growth objectives and for financial managers optimizing capital structure and
dividend decisions under shifting fiscal regimes.