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Corporate Tax Rates, Financial Leverage, and Firm Growth in Sub - Saharan Africa

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  • Emmanuel Okofo-Dartey

    (University of South Africa)

Abstract

The study investigates the moderating effect of corporate tax rates on the relationship between financial leverage and firm growth in sub-Saharan Africa. Firm and country-level data of 327 non-finance firms in sub-Saharan Africa are obtained from the Bloomberg terminal and the Global Competitive Index of the World Economic Forum (WEF) from 2007 to 2017 for the study. The difference Generalized Moment of Method (GMM) approach was used for the analysis. Results of the study reveal a positive and statistically significant relationship between financial leverage and profitability. Financial leverage is negatively and statistically significantly related to firms’ growth opportunities in SSA. However, the study finds that, in the presence of corporate tax rates, financial leverage positively relates to the growth of firms in SSA. Per the observed influence of corporate tax in the measured relationship between financial leverage and firm growth, governments in sub-Saharan Africa should implement tax policies that do not adversely affect firm expansion but rather motivate foreign investors and encourage local companies to grow.

Suggested Citation

  • Emmanuel Okofo-Dartey, 2023. "Corporate Tax Rates, Financial Leverage, and Firm Growth in Sub - Saharan Africa," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 19(1), pages 208-231, February.
    • Handle: RePEc:dug:actaec:y:2023:i:1:p:208-231
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