Corporate financing decisions are central to firms’ sustainability and growth, yet empirical evidence on how fiscal incentives shape capital structure choices in emerging markets remains limited. This study evaluates the effect of fiscal incentives such as tax holidays, tax exemptions, and tax deductions, on corporate financing decisions among firms operating in Ilala Municipality, Tanzania. Guided by the Pecking Order and Trade-Off Theories, the study adopted a cross-sectional research design and collected quantitative data from 181 medium and large firms across manufacturing, banking, telecommunications, and service sectors. Data were analyzed using the General Linear Model (GLM). The findings reveal that tax holidays have a positive and statistically significant effect on corporate financing decisions (β = 0.391, p < 0.001), while tax exemptions exhibit the strongest influence (β = 0.611, p < 0.001), indicating their role in reducing financing constraints and encouraging optimal debt–equity choices. Tax deductions also demonstrate a significant effect (β = 0.448, p < 0.001), reflecting improved internal cash flows and strategic leverage decisions. Multicollinearity diagnostics (VIF < 2) confirm model robustness. Despite these insights, the cross-sectional design limits causal inference and restricts generalization beyond Ilala Municipality. The study contributes context-specific evidence on fiscal policy and capital structure behavior in Tanzania and underscores the need for well-targeted incentive frameworks to support sustainable corporate financing in emerging economies.
Mohamed et al. (Fri,) studied this question.