AN EMPIRICAL INVESTIGATION OF CAPITAL STRUCTURE AND TAX SHIELD ON BUSINESS DISTRESS IN NIGERIA: AN APPLICATION OF PANEL CORRECTED STANDARD ERROR (PCSE) APPROACH
EBOIYEHI OSAZEMEN CHINELO *
University of Benin, Nigeria.
IKPESU FREDRICK
Pan Atlantic University, Nigeria.
*Author to whom correspondence should be addressed.
Abstract
Business distress may arise when firms fail to honor their promises to creditors and suppliers and this can lead to a situation where customers and suppliers begin to lose confidence in the firm which may affect the continued survival of the organization. The study investigated the impact of capital structure, and tax shield on business distress in Nigeria within the period of 2010 to 2014 using the panel corrected standard error (PCSE) approach. The variables used in the study are ALTMA Z-Score which measures business distress as dependent variable, LT_DTA, INTAX as independent variables, while control variables used in the study are TASST and FASTA. From the descriptive statistics result, the ALTMA Z score shows an average of 2.25 years which exceed the probability that firms will become distressed within 2years. Thus indicating that firms are not within the distress zone. The outcome of the panel corrected standard error (PCSE) result shows that capital structure (LT_DA) has a negative and significant relationship with business distress (ALTMA). Also, the result further shows that tax shield (INTAX) has a positive and significant relationship with business distress (ALTMA) in Nigeria.
Keywords: Capital structure, tax shield, business distress, Nigeria