Tax Planning, Corporate Governance and Financial Performance of Selected Quoted Non-Financial Companies in Nigeria (2007–2018)
Articles
John Olayiwola
Obafemi Awolowo University Ile-Ife, Nigeria
https://orcid.org/0000-0001-9116-653X
Stephanie Okoro
Obafemi Awolowo University Ile-Ife, Nigeria
https://orcid.org/0000-0002-0134-584X
Published 2021-12-22
https://doi.org/10.15388/omee.2021.12.59
PDF
HTML

Keywords

capital intensity
thin capitalization
ownership structure
board diversity
Generalized Moment Method
Nigeria

How to Cite

Olayiwola J. and Okoro S. (2021) “Tax Planning, Corporate Governance and Financial Performance of Selected Quoted Non-Financial Companies in Nigeria (2007–2018)”, Organizations and Markets in Emerging Economies, 12(2), pp. 332-352. doi: 10.15388/omee.2021.12.59.

Abstract

This study examines the interactive effect of tax planning and corporate governance on the financial performance of 50 non-financial quoted companies in Nigeria between 2007 and 2018. The study sample that covers 9 sectors was selected purposively through stratified random sampling. Data used were collected from the audited annual reports and accounts of selected quoted companies in Nigeria and fact books published by the Nigeria Stock Exchange. A system GMM was employed to estimate the dynamic models, and results show that ownership structure (OS) and capital intensity (CI) exerted a significant and positive impact on the returns on assets. This implies that OS plays a significant role to ensure that CI triggers an increase in the return on assets of the quoted Nigerian companies. However, board diversity and thin capitalization wielded a significant and negative influence on return on assets. This study thus recommends that companies should put in place a strong corporate governance mechanism that will monitor, check and balance tax planning activities and strategies adopted by the management of quoted companies in Nigeria.

PDF
HTML

References

Abdul-Wahab, N. S., & Holland, K. (2012). Tax planning, corporate governance and equity value. The British Business Review, 44(1), 111-124.

Ahmed, Z., & Khaoula, F. (2013). The Effects of Board of Directors’ Characteristics on Tax Aggressiveness. Research Journal of Finance and Accounting, 4(4), 1-32.

Alabi, S. (2001). Tax Planning. A Paper delivered at the Workshop on Nigerian corporate and Personal Income Tax Management Lagos, August 15th.

Anazonwu, H. O., Egbunike, F. C., & Echekoba, F. N. (2018). Agency Cost and Dividend Payout: A Study of Selected Listed Manufacturing. Indonesian Journal of Management and Business Economics, 1(1), 42-51.

Ang, J. S., Cole, R. A., & Lin, J. W. (2007). Agency Costs and Ownership Structure. The Journal of Finance, 55(1), 21-43.

Annuar, H. A., Salihu, I. A., & Obid, S. N. (2014). Corporate Ownership, Governance and Tax Avoidance: An Interactive Effects. Procedia – Social and Behavioral Sciences, 164, 150 – 160. https://doi.org/10.1016/j.sbspro.2014.11.063

Apanisile, O., & Taiwo, A. (2014). Relationship between Insurance and Economic Growth in Sub-Saharan African: A Panel Data Analysis. Modern Economy, 5(1), 120-127.

Areliano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29-51.

Arellano, M., & Bond, S. (1991). Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equation. The Review of Economic Studies, 58(2), 277-297.

Awirothananon, T., & Thanjunpong, S. (2019). The Effect of Tax Planning on Financial Performance in the Stock Exchange of Thailand. International Journal of Trade, Economics and Finance, 10(1), 25-29.

Blundell, R., & Bond, S. (1998). Initial Conditions and Moment Restrictions in Dynamic Panel Data Models. Journal of Econometrics, 87(1), 115-143.

Blundell, R., & Bond, S. (2000). GMM Estimation with Persistent Panel Data: An Application to Production Functions. Econometric Reviews, 19(3), 321-340.

Bradshaw, M., Liao, G., & Ma, M. (2019). Agency Costs and Tax Planning when the Government is a Major Shareholder. Journal of Accounting and Economics, 67(1), 255-277.

Desai, M. A., & Dharmapala, D. (2006). Corporate Tax Avoidance and High-Powered Incentives. Journal of Financial Economics, 79(1), 145-179.

Dyreng, S. D., Hanlon, M., & Maydew, E. L. (2010). The Effects of Executives on Corporate Tax Avoidance. The Accounting Review, 85(4), 1163-1189.

Fagbemi, T. O., Olaniyi, T. A., & Ogundipe, A. A. (2019). The Corporate Tax Planning and Financial Performance of Systematically Important Banks in Nigeria. Economics Horizons, 21(1), 15-27.

Frank, M. Z., & Goyal, V. K. (2009). Capital Structure Decisions: Which Factors Are Reliably Important? Financial Management Association International, 38(1), 1-37.

Hoffman, W. H. (1961). The Theory of Tax Planning. Accounting Review, 36(2), 274–281.

Ibobo, I. B., Egbule, S. A., & Arukaroha, J. (2019). Effect of Board Characteristics, Firms Performance and Effective Tax Planning in Nigeria Food Manufacturing Sector. FUO Quarterly Journal of Contemporary Research, 7(3).

Im, K., Pesaran, M., & Shin, Y. (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, 115(1), 53-74.

Jensen, M. C., & Meckling, W. H. (1976). Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(4), 305-360.

Kawor, S., & Kportorgbi, H. (2014). Effect of Tax Planning on Firms Market Performance: Evidence from Listed Firms in Ghana. International Journal of Economics and Finance, 6(3), 162-168.

Khaoula, F., & Moez, D. (2019). The Moderating Effect of the Board of Directors on Firm Value and Tax Planning: Evidence from European Listed Firms. Borsa Instabul Review, 2214-8450. https:doi.org/10.1016/j.bir.2019.07.005

Khaoula, F., AYED, A., & Zemzem, A. (2015). Tax Planning and Firm Value: Evidence from European Companies. International Journal Economics Strategic Management of Business Process, 4(1), 73-78.

Kholbadalov, U. (2012). The Relationship of Corporate Tax Avoidance, Cost of Debt and Institutional Ownership: Evidence from Malaysia. Atlantic Review of Economics, 2(1), 33-45.

Kurawa, J. M., & Saidu, H. (2018). Corporate Tax and Financial Performance of Listed Nigerian Consumer Goods. Journal of Accounting and Financial Management, 4(4), 30-43.

Lanis, R., & Richardson, G. (2011). The Effect of Board of Director Composition on Corporate Tax Aggressiveness. Journal of Accounting and Public Policy, 30(1), 50-70.

Lanis, R., & Richardson, G. A. (2011). Corporate Social Responsibility and Tax Aggressiveness. doi:http://dx.doi.org/10.2139/ssrn.1904002

Lee, N., & Swenson, C. (2012). Are Multinational Corporate Tax Rules as Important as Tax Rates? International Journal of Accounting, 47(1), 155-167.

Lestari, N., & Wardhani, R. (2015). The Effect of the Tax Planning to the Firm Value with Moderating Board Diversity. International Journal of Economics and Financial Issues, 5(Special Issue), 315-323.

Levin, A., Lin, C., & Chu, C. (2002). Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties. Journal of Econometrics, 108(1), 1-24.

Ma, M., & Thomas, W. B. (2019). Legal Environment and Corporate Tax Avoidance: Evidence from State Tax Codes. The Journal of the American Taxation Association.http://dx.doi.org/10.2139/ssrn.3403842

Mcknight, P., & Weir, C. (2009). Agency costs, corporate governance mechanisms and ownership structure in large UK publicly quoted companies: A panel data analysis. The Quarterly Review of Economics and Finance, 49(1), 139-158.

Nwaobia, A. N., & Jayeoba, O. O. (2016). Tax Planning and Firms’ liquidity. IJRDO-Journal of Business Management, 2(10), 2455-6661.

Odunayo, O. M., & Olayiwola, J. A. (2019). Corporate Tax Planning and Financial Performance in Nigerian Non-Financial Quoted Companies. African Development Review, 31(2), 202-215.

Ogundajo, G., & Onakoya, A. B. (2016). Tax Planning and Financial Performance of Nigerian Manufacturing. International Journal of Advanced Academic Research, 2(7), 64-72.

Olajide, D. S. (2017). Tax planning and Firms’ Performance in Nigeria. International Journal of Advanced Research, 5(5), 1950-1956.

Pattiasina, V., Tammubua, M. H., Numberi, A., & Patiran, A. (2019). Capital Intensity and Tax Avoidance. International Journal of Social Sciences and Humanities, 3(1), 58-71.

Richardson, G., Taylor, G., & Lanis, R. (2013). The Impact of Board Oversight Characteristics on Corporate Tax Aggressiveness: An Empirical Analysis. Journal of Accounting and Public Policy, 32(1), 68-88.

Salawu, R. O., & Adedeji, Z. A. (2017). Corporate Governance and Tax Planning among Non-Financial Quoted Companies in Nigeria. African Research Review, 11(3), 42-59.

Sapiei, N. S., Abdullah, M., & Sulaiman, N. A. (2014). Regressitivity of the corporate taxpayers’ compliance costs. Procedia – Social and Behavioral Sciences, 164(1), 26-31.

Singh, M., & Davidson III, W. N. (2003). Agency Costs, Ownership Structure and Corporate Governance Mechanisms. Journal of Banking & Finance, 27(5), 793-816.

Slemrod, J., & Crocker, K. J. (2004). Corporate Tax Evasion with Agency Costs. Journal of Public Economics, 89(9), 1593-1610.

Taylor, G., & Richardson, G. (2013). The Determinants of Thinly Capitalized Tax Avoidance Structures: Evidence from Australian Firms. Journal of International Accounting, Auditing and Taxation, 22(1), 12-25.

Uniamikogbo, E., Bennee, E., & Adeusi, S. A. (2019). Corporate Governance and Tax Aggresiveness in Nigeria. AE-FUNAI Journal of Accounting Business and Finance (FJABAF), 4(1), 20-33.

Weir, C., Laing, D., & McKnight, P. (2002). Internal and External Governance Mechanisms: Their Impact on the Performance of Large UK Public Companies. Journal of Business Finance & Accounting, 29(5), 579-611.

Wilson, R. (2009). An Examination of Corporate Tax Shelter Participants. The Accounting Review, 84(3), 969-999.

Yimbila, B. (2017). Tax Planning, Corporate Governance and Performance of Banks in Ghana. Sam Jona Library.

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Please read the Copyright Notice in Journal Policy.