Corporate debt bias in NSE listed companies in Kenya - evaluation of an ACE reform on investmentments levels

Abstract

This study looks at the corporate debt bias resulting from debt deductibility of interest. It aims at establishing whether an Allowance for Corporate Equity (ACE) tax reform within capital intensive firms listed on the NSE specifically the effect ACE would have on investments. Estimates used show that investments would grow up to five percent if the ACE was applied from the year 2004 for the selected firms. This growth supports the premise that the tax reform would eliminate investment distortions and encourage higher levels of investment.