The impact of taxation for the financial results of a company

Regarding the issue of the impact of taxation on the financial performance of the company, in general, and
financial structure, in particular, there are numerous studies in national and international literature
(Modigliani and Miller, 1963; Graham, 2003; Stancu, 2007; tattoo L., 2006 Vintil G., 2005, Wu and Yue,
2009). The results of these studies showed that a way to increase the financial performance of the company is
to identify the optimal ratio between equity and borrowed capital used in financing activity. Increasing debt
can lead to financial structure resulting tax savings associated with considerable interest deductibility.
Under the objective of maximizing the profit tax is a tax variable significant impact on the financial
performance of the company. In this context, the analysis of the effective corporate tax rate and its
determinants should be considered in the substantiation of management decisions.
Based on the results of previous studies and given special treatment in terms of tax deductibility for interest
expenses in the case of Moldova, I conducted a study to identify the influence of taxation on the financial
performance of the company's profits. On the 25 companies 8 analyzed we found that increased indebtedness
could result in an increase or decrease in profitability but by maintaining current interest rates. An increase in
interest rates could lead to lower profitability. This is normal because, in general, the level of indebtedness
increases the risk and thus increase the interest rate changes and, most often its upside. This can reach a point
where the marginal tax savings are outweighed by the costs.
I also analyzed the influence of the effective rate of tax on company profitability. As in other studies
(Derashid and Zhang, 2003) found a negative relationship between the two variables. Thus, the effective tax
rate is higher, the profitability decreases. I think this can occur when there is a high share of non-deductible
expenses or considering a larger company achieved a higher taxable income resulting in a tax burden.
Regarding firm size were found between this and profitability is a positive relationship because it believes
that larger firms tend to be more diversified and therefore have lower probability of bankruptcy and achieve
greater profitability. Also, if you resort to loans, we can assume that these loans are used for various
investment projects which, in turn, generates tax savings through the deductibility of depreciation. Thus I can
say indeed that firm size positively influences company performance. The theory of political power
(Siegfried, 1972) predicts that large firms would face lower effective tax rates because they have the power to
negotiate. Instead, political cost theory (Watts and Zimmerman, 19787) argues that because of visibility and
control of large, large companies end up paying a higher tax burden.
Like previous models made in the literature, and models made in this paper shows some weaknesses both
lack of data and because of the many changes made on the Romanian fiscal.
In conclusion, the survey results to identify the impact of income tax on company performance are
consistent with some results obtained in studies of international literature.