Capital Intensity and Firm Liquidity: A Case of Deposit-Taking Savings and Credit Co-Operative Societies in Kenya

Abstract

Tax has a significant implication on corporate decisions. Companies take the tax burden into account when designing their policies.  To manage the effects of taxes on firms' profitability, liquidity, and performance, firms employ various tax-planning strategies to mitigate the impact of a high tax burden. The specific objective was to determine the effect of capital intensity on the liquidity of Deposit-Taking Savings and Credit Co-operative Societies in Kenya.  The study was supported by Tax Shield Theory. The study focused on 176 licensed Deposit-Taking SACCOs in Kenya. The instrument of the study was secondary data obtained from the financial reports of licensed Deposit-Taking SACCOs over a 7-year period (2018-2024). The hypotheses were tested at the 0.05 significance level using regression analysis. A regression analysis model was used to analyze the data. The study's fixed-effect model concluded that capital intensity had a positive and significant effect on liquidity (β = 0.475, p = 0.041). Moreover, regarding capital intensity, management teams should prioritize strategic capital investment planning that views fixed asset acquisition not merely as a tax-planning activity and an operational necessity but as a foundation for enhanced liquidity resilience, allocating resources to build robust infrastructure that supports both operational efficiency and precautionary liquidity holding.