Taxation and corporate financing: what theoretical approach?

Abstract

The aim of this paper is to review the literature on taxation and corporate financing, while mobilizing the theoretical foundations dealing with the impact of taxation on corporate financing. Indeed, taxation has become an important variable in the financial strategy and an essential element in the decision-making of any company, insofar as the main objective is always to maximize profits and improve the firm value. As a result, the tax literature has focused on tax issues in the search for the most appropriate and cheapest means of financing. Each means of financing has advantages and disadvantages that the company takes into consideration when making its financing decision. Through several aspects, in particular the Tax aspect, which may encourage or discourage the use of a particular means of financing. Nevertheless, the tax provisions influence, directly and indirectly, investment financing decisions, through the presence of a tax burden of financing, the existence of tax advantages and the differentiation of the tax treatment according to each mode of financing. Since tax is always considered a legal obligation to comply with or an additional cost to be borne, the company always seeks to optimize its taxation by making use of the means of financing allowing it to save tax.

JEL Classification : G30, G32 

Paper type : Theoretical Research