Corporate finance

Running Head : Corporate Finance

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Taxation on companies takes a form of tax called corporate tax which can be defined as a direct tax levied on proceeds made by companies or associations . Corporate tax rates vary from country to country based on different set of rules . In most cases corporate tax is levied before the profits have been circulated to the shareholders . This looks forward to discuss the impact of taxation on company i .e . corporate tax effect on policies and decision making in a corporate

institution particularly on company capital structure decision . Decision making in a company capital structure is influence by many factor ranging from taxation regime which is the subject in this to business goals Other includes

culture entrepreneurial characteristics entrepreneurs ' prior experiences in capital structure business goals business life-cycle issues ownership structures views regarding control debt-equity ratios , and short- vs . long-term debt age and size of the firm sources of funding for growth attitudes toward debt financing issues relating to independence and control and perceived risk and attitudes toward personal risk (Romano , 2001 para 3

The discussions in this shall focus on different aspect of effect for example equity policies , debt equity policies , ownership structure and organization form among others . The effect attributed by high or low tax benefit and the effect of company capital structure . This discusses effect of the difference in taxation of debt and equity financing on capital structures . The relevance of corporate taxes to corporate financial planning and the effect of variation in capital income tax rate to capital structure will be discussed in this The will also discuss the relationships between non-debt tax and corporate tax rate as well as there effect on capital structure

Corporate income tax is based on the amount of profit distributed to the company 's owners (Hazak , 2007 pp 6 . This means corporate tax affects to companies ' decisions involving financial as well as legal structure . According to research done by Commission of the European Communities 2004 , impact of tax in the decisions touching investment as well as effect on company capital structure was evaluated . The results hinted that taxation was an important factor and influenced decisions on location of production plants , mergers and acquisitions decisions

.tax conditions affect companies ' decisions concerning the financial , capital and legal structure of their international operations . The main findings here are : For 87 .3 of the companies taxes can influence decisions on whether foreign operations should be organized through a subsidiary , a branch or a permanent establishment Estimates indicate that 77 .2 of the companies consider tax as a factor when they decide to use new equity or debt when financing foreign operations directly or indirectly via the parent company Overall companies with cross-b activities are significantly more sensitive to taxation when deciding the financial and legal structure of their operations than those who are active only in one country (Commission of the European communities 2004 pp 5

Capital structure...