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Corporate Tax Planning and Financial Performance in Nigerian Non‐Financial Quoted Companies
Author(s) -
Olarewaju Odunayo Magret,
Olayiwola John Ayobamibo
Publication year - 2019
Publication title -
african development review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.654
H-Index - 32
eISSN - 1467-8268
pISSN - 1017-6772
DOI - 10.1111/1467-8268.12378
Subject(s) - variance decomposition of forecast errors , finance , business , corporate tax , economics , monetary economics , tax avoidance , double taxation , econometrics
This study investigates the relationship between corporate tax planning and financial performance of quoted non‐financial companies. The secondary yearly data used were gathered from 47 sampled non‐financial companies from 2007 to 2016. A panel vector autoregressive approach with structural analysis such as variance decomposition and impulse response function was adopted. The results of the study revealed that tax saving had a direct relationship with financial performance, while tax avoidance had an inverse relationship with financial performance. The financial variables under consideration mainly contributed to their own shocks or forecast errors. The responses of the financial performance to shocks in tax avoidance had an expansionary effect which could hinder the performance of the companies, while financial performance response to shocks in tax savings had a contractionary effect and as such, could lead to better performance of the companies. Thus, corporate tax planning that enhances tax savings greatly contributes to the performance of non‐financial companies. They should therefore not only engage in tax planning, but also ensure that their tax planning is legal, and leads to tax saving for the companies, such that no excessive or multiple tax will be paid and hence, better financial performance will be achieved.