IMPACT OF TAX SHIELDING AND FIRM SIZE ON PROFITABILITY: IMPLICATIONS FOR POLICY LEGISLATION AND MANAGEMENT
Keywords:
Debt tax, non-debt tax shield, Firm size, profitability, Return on Equity
Abstract
This study examined the effects of tax shielding dynamics using firm size as a moderator on profitability in the Nigerian non-financial sector. The study made use ofsecondary data from 53 listed non-financial firms from the Nigerian Exchange Group between 2012 and 2021. The data were tested using STATA 14 statistical software. The result of the test reveals a chi-square statistic of 0.28 and a corresponding p-value of 0.9634 which suggests that the independent variables are not statistically significant. Specifically, our findings reveal that there is no significant linear relationship between DEBTTAXand ROE, that NONDEBTTAX indicates a negative relationship withROE and that there is no significant linear relationship between FIRM SIZE and ROE. The study therefore recommends a re-evaluation of tax policy which involves re-assessing the effectiveness of tax incentives or exemptions aimed at encouraging debt financing and a review tax rates, tax exemptions, and tax deductions applicable to nondebt taxes. It also recommends that policymakers could implement targeted policies to support the growth and development of SMEs in the non-financial sector. Furthermore, managers should prioritize tax planning and compliance efforts to minimize the impact of tax liabilities on profitability and focus on optimizing resource allocation and operational efficiency to enhance profitability.
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References
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Ilaboya, O. J., &Aronmwan, E. J. (2023). Chief Executive Officer’s attributes and tax avoidance: evidence from Nigeria. International Journal of Disclosure and Governance, 20(1), 99-108.
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Sinebe, M.T. (2021a). Tax evasion and avoidance and economic development: Evidence from Nigeria. AFAR Multidisciplinary Journal of management Sciences (MJMS). 3 (1) 172-185.
Sinebe, M.T. (2021b). Retrospective Analysis on The Return on Asset, Firm Size (Fs) And Age of Firm on Capital Structure of Banks in Nigeria. Federal University, Otuoke, Quarterly Journal of Contemporary Research. 9 (2) 240-253.
Sinebe, M. T. & Henry, P. O. (2023). Evaluating return on investment as a tool for investment decisions making and firm’s performance. University Of Port Harcourt Business School, African Journal of Accounting, Finance and Marketing 7 (1) 96-106.
Sinebe, M.T. &Akpomiemie, A.O. (2023). Tax Planning: The mediating effect of profitability, return on assets and firms’ value. International Journal on Economics, Finance and Sustainable Development, 5(6), 232-244.
Sinebe, M.T (2023). Small and Medium Scale (SMES) Financial Management and Performance: A Case Study of SMES In Asaba Metropolis in Delta State of Nigeria. Western Delta University, Oghara, Delta State, Journal of Social and Administrative Sciences, 7 (1) 12-21.
Sinebe, M. T., &Emudainohwo, O. B. (2023). Tax Planning and Firms’ Value in Nigeria. International Journal on Economics, Finance and Sustainable Development, 5(10), 24-36.
Sinebe M.T. &Edirin, J.(2023). Corporate governance and financial statements’ fraud: Evidence from listed firms in Nigeria. Asian Journal of Management and Commerce, 4 (2) 118-123.
Sundvik, D. (2017) A review of earnings management in private firms in response to the tax rate changes. Nordic Tax Journal, 2017 (1), pp. 151-161.
Susilawaty, T. E. (2021). The effect of debt tax shield and non-debt tax shield on capital structure on advertising printing media companies listed in Indonesia stock exchange. enrichment: journal of management, 12(1), 639-646.
Velez – Pareja, I. (2016) Tax shields, financial expenses and losses carried forward. Cuadernos de Economía, 35(69), 663-689.
Akan, D.C., Sinebe, M.T. &Bereprebofa, D. (2023). Capital cost and sustainability of Small and Medium-Scale Enterprises (SMEs) in Nigeria. GPH- International Journal of Science and Humanities research 6 (11), 13-24.
Akingunola, R. O., Olawale, L. S., & Olaniyan, J. D. (2018). Capital structure decision and firm performance: Evidence from non-financial firms in Nigeria. Acta Universitatis Danubius. OEconomica, 13(6).
Dennis, A., & Michael, T. M. (2021). Tax shield and capital structure. Journal of Financial Economics, 114(3), 424-443.
Dragota, V., & Tatu, L. (2011). Capital budgeting: A tax shields’ “mirage”? Theoretical and Applied Economics, XVIII (3), 31-40.
Emudainohwo, O. B., & Okolo, M.N. (2022). Tax revenue impact on economic growth in Nigeria: ARDL bounds test and cointegration approach. Journal of Tax Reform, 8(2), 140-156.
Ebiaghan, O. F., Jeroh, E., & Ideh, A. O. (2021). Causality analysis of non-oil tax component of government revenue, company income and transaction taxes: evidence from a third world developing economy. Universal Journal of Accounting and Finance, 9(6), 1355-1365.
Gregory, A. A., & Okolo, M.N. (2023). Tax Collection, Utilization Systems and the Performance of Small and Medium Scale Enterprises in Nigeria: A Multivariate Approach. Journal of Tax Reform, 9(2), 134-144.
Gregova, E., Smrcka, L., Michalkova, L., &Svabova, L. (2021). Impact of tax benefits and earnings management on capital structures across V4 countries. Acta PolytechnicaHungarica, 18(3), 221-244.
Ilaboya, O. J., &Aronmwan, E. J. (2023). Chief Executive Officer’s attributes and tax avoidance: evidence from Nigeria. International Journal of Disclosure and Governance, 20(1), 99-108.
Isenmila, P. A., &Afensimi, E. (2020). Earnings management and ownership structure: Evidence from Nigeria. Research Journal of Finance and Accounting, 3(7), 24-36.
Jeroh, E., &Edesiri, G. O. (2015). An empirical analysis of share price determinants in Nigeria: A dividend and net asset replica. Scientific papers of the University of Pardubice. Series D, Faculty of Economics and Administration. 33/2015.
Jeroh, E. (2020). Firms’ attributes, corporate social responsibility disclosure and the financial performance of listed companies in Nigeria. Asian Economic and Financial Review, 10(6), 727.
Jeroh, E., Okolo, M.N., & Sinebe, M.T. (2022). Analysis of the causal relationship between electronic tax system, tax revenue and economic growth in Nigeria. Hmlyan Jr Eco Bus Mgn; 3(5), 35-46.
Kovacova, M., Krajcik, V., Michalkova, L, & Blazek, R. (2022). Valuing the interest tax Shield in the central European economies: Panel Data Approach. Journal of Competitiveness, 14(2), 41–59.
Marvis, O. N., Ideh, I. O., & Emeka, E. S. (2021). Electronic corporate tax, aggregate federally collected tax revenues and economic growth: A multivariate VAR approach. Universal Journal of Accounting and Finance, 9(3), 372-382.
Michalkova, L., Stehel, V., Nica, E., &Durana, P. (2021). Corporate management: capital structure and tax shields. Marketing imenedžmentinnovacij, (3), 276-295.
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American economic review, 48(3), 261-297.
Nnubia, I. C., & Okolo, M. N. (2018). Effect of corporate tax on profitability of business organizations in Nigeria. International Journal of Management Studies, Business & Entrepreneurship Research, 3(4), 14-23.
Obi, B. C., Amadi, E., Okafor, C. L., &Unuabonah, E. (2020). The Impact of Tax Shield on capital structure: empirical evidence from Nigeria. Nigerian Academy of Management Journal, 15(1), 115-126.
Orits-Ebiaghan, R. &Ebiaghan, F. O. (2023). Tax revenue management and growth dynamics: Nigerian evidence. Journal of Academic Research in Economics, 15(2) 423-436.
Owolabi, S. A., & Inyang, U. E. (2020). Determinants of capital structure in Nigerian firms: A theoretical review. eCanadian Journal of Accounting and Finance, 1(1), 7-15.
Rialdy, N., & Fahmi, M. (2023). The impact of company size, sales growth, and a non-debt tax shield on manufacturing companies ‘capital structure on the Indonesia stock exchange. jimupb (jurnalilmiahmanajemen universitas puterabatam), 11(1), 68-78.
Samuel, H. U., Akpan, D. C., Nsentip, E. B., &Ukpe, E. A. (2023). Tax shield and firms value of quoted manufacturing companies in Nigeria. International Journal of Business and Management Review, 11(9), 16-34.
Sinebe, M.T. (2020). Corporate distress and firm management: A conceptual review. AFAR Multidisciplinary Journal of management Sciences (MJMS). 2 (2) 131-141
Sinebe, M.T. (2021a). Tax evasion and avoidance and economic development: Evidence from Nigeria. AFAR Multidisciplinary Journal of management Sciences (MJMS). 3 (1) 172-185.
Sinebe, M.T. (2021b). Retrospective Analysis on The Return on Asset, Firm Size (Fs) And Age of Firm on Capital Structure of Banks in Nigeria. Federal University, Otuoke, Quarterly Journal of Contemporary Research. 9 (2) 240-253.
Sinebe, M. T. & Henry, P. O. (2023). Evaluating return on investment as a tool for investment decisions making and firm’s performance. University Of Port Harcourt Business School, African Journal of Accounting, Finance and Marketing 7 (1) 96-106.
Sinebe, M.T. &Akpomiemie, A.O. (2023). Tax Planning: The mediating effect of profitability, return on assets and firms’ value. International Journal on Economics, Finance and Sustainable Development, 5(6), 232-244.
Sinebe, M.T (2023). Small and Medium Scale (SMES) Financial Management and Performance: A Case Study of SMES In Asaba Metropolis in Delta State of Nigeria. Western Delta University, Oghara, Delta State, Journal of Social and Administrative Sciences, 7 (1) 12-21.
Sinebe, M. T., &Emudainohwo, O. B. (2023). Tax Planning and Firms’ Value in Nigeria. International Journal on Economics, Finance and Sustainable Development, 5(10), 24-36.
Sinebe M.T. &Edirin, J.(2023). Corporate governance and financial statements’ fraud: Evidence from listed firms in Nigeria. Asian Journal of Management and Commerce, 4 (2) 118-123.
Sundvik, D. (2017) A review of earnings management in private firms in response to the tax rate changes. Nordic Tax Journal, 2017 (1), pp. 151-161.
Susilawaty, T. E. (2021). The effect of debt tax shield and non-debt tax shield on capital structure on advertising printing media companies listed in Indonesia stock exchange. enrichment: journal of management, 12(1), 639-646.
Velez – Pareja, I. (2016) Tax shields, financial expenses and losses carried forward. Cuadernos de Economía, 35(69), 663-689.
Published
2024-07-20
How to Cite
M.T, S., & F.O., E. (2024). IMPACT OF TAX SHIELDING AND FIRM SIZE ON PROFITABILITY: IMPLICATIONS FOR POLICY LEGISLATION AND MANAGEMENT. GPH-International Journal of Applied Management Science, 5(02), 23-34. https://doi.org/10.5281/zenodo.12787279
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