A dynamic panel data approach of corporate tax avoidance and debt financing in Nigeria

Figures & data

Table 1. Sample and selection procedure.

Initial sample size before elimination 105

Companies Delisted after 2011 (23)

ICT and Services Companies (24)

Agricultural and natural resources (14)

Negative profit before income tax (18)

Final sample size 26

Observation period (2010–2021) 12yrs

Number of observations 312

Table 2. Variables definition and their measurement.

Variables	Measurement	Source
Panel A: Dependent variables
Total Debt/Total Assets	Total interest-bearing debt divided by total assets.	Sani et al. (2020), Al-Absy (2022). (Elmagrhi et al., 2018)
Total Debt/ total Equity	Total debt divided by total equity	Sunardi et al. (2020)
Panel B: Independent Variables
Cashflow effective tax rate (CFETR).	Tax expenses divided by operational cashflow.	Alkurdi and Mardini (2020)
Cash effective tax rate(cETR)	Cash tax paid scaled by pre-tax income	Alkurdi and Mardini (2020).
Book-tax difference (BTD).	Pre-tax income minus taxable income.	Khanh and Khuong (2019)
Panel C: Control variables
Total Accrual (TA)	Net income minus operating cash flow scaled by total assets.	Jaffar et al. (2021), Abdul Wahab et al. (2018).
Profitability (ROE)	Profit after tax scaled by shareholders’ fund.	Santa and Rezende (2016)
Tangibility (TAN)	Total non-current assets divided by total assets.	Bayraktaroglu et al. (2019); Al-Absy and Hasan (2023)
Firm size	Natural of Logarithm of total assets.	Razali et al. (2018)
Industry dummy (IND)	Dummy variables 1 = services, 2 = manufacturing	Razali et al. (2018); Sani’ et al. (2021)

Table 3. Descriptive statistics.

Variable	Obs	Mean	SD	Min	Max
TDTA	312	0.119	0.131	0.000	0.495
TDTE	312	0.471	0.463	0.849	0.902
CFETR	312	0.281	0.319	−0.288	1.200
CETR	312	0.027	0.026	0.000	0.090
BTD	312	0.039	0.082	−0.332	0.373
TA	312	−0.044	0.094	−0.240	0.131
Fsize	312	10.290	0.777	8.931	12.412
TAN	312	0.371	0.187	0.021	0.822
ROE	312	1.123	1.404	0.079	4.549
IND	312	1.654	0.477	1.000	2.000

Table 4. Correlation matrix.

TDTA	CFETR	CETR	BTD	TA	Fsize	TAN	ROE	IND	VIF
TDTA	1.000
CFETR	−0.131	1.000
CETR	−0.239	0.239	1.000
BTD	0.069	0.024	−0.447	1.000
TA	0.073	0.227	0.010	−0.002	1.000
Fsize	0.124	−0.169	−0.015	0.199	−0.073	1.000
TAN	0.183	−0.080	−0.183	0.088	−0.198	−0.141	1.000
ROE	0.009	0.053	0.275	0.152	−0.076	0.367	−0.011	1.000
IND	0.276	−0.052	0.173	0.116	−0.043	0.263	0.131	0.136	1.000

Table 5. Regression results of tax avoidance and interest bearing liabilities (Model 1).

	Coeff	z-value
L.TD/TA	0.696	13.48***
CFETR	−0.008	−0.97
CETR	−0.412	−2.45**
BTD	−0.134	−2.59**
TA	2.243	3.86***
Fsize	0.016	3.48***
TAN	0.035	2.07**
ROE	−0.003	−1.18
IND	0.146	1.33
Const
Wald Chi^2	0.4695
AR1	0.001
AR2	0.428
Hansen test	0.764
Hausman	0.005
Modified Wald Test	0.000
Woodridge test	10.6***

Notes: Model 1= Debt to Total Assets, CFETR = Cashflow effective Tax Rate, BTD = Book to Tax Differences, TA = Total Accruals, FSize = firm size, TAN = tangibility, ROE = return on equity, IND = industry type.

***, **, and * indicate 1, 5%, and 10% levels, respectively.

Table 6. Regression results tax avoidance and debt equity ratio (Model 2).

	Coeff	z-value
L.TD/TE	0.0283	4.97***
CFETR	−0.0027.	−0336
CETR	−1.0382	−6.71***
BTD	−0.1668	−4.04***
TA	0.1908	5.67***
Fsize	0.0087	0.71
TAN	0.0989	2.17**
ROE	−0.0179	−3.8***
IND	0.0744	3.71***
Const	−0.1156	−0.93
Wald Chi^2	343.33
AR1	0.01
AR2	0.281
Hansen test	0.03
Modified Wald Test	0.0000

Notes: Model 2 = Debt to Total Equity, CFETR = Cashflow effective Tax Rate, BTD = Book Tax Differences, TA = Total Accruals, FSize = firm size, TAN = tangibility, ROE = return on equity, IND = industry type.

***, **, and * indicate 1, 5%, and 10% levels, respectively.

Table 7. Regression results (PSCE) additional analysis.

	Model 1 (TDTA)		Model 2 (TDTE)
	Coeff	t-value	Coeff	z-value
Cons	−0.094	−1.65*	−0.0812	−0.48*
CFETR	−0.017	−0.71	−0.812	−0.33
CETR	−1.792	−3.94***	−23.364	−4 .70***
BTD	−0.255	−2.12**	−4.858	−3.75***
TA	0.187	2.50**	0.842	0.92
Fsize	0.01	1.6	0.619	0.85
TAN	0.086	2.38**	0.945	11.83***
ROE	0.008	1.39	0.275	1.59
IND	0.087	7.30***	−0.408	−0.46
Model Summary
Wald Chi^2	131.95***		516.27***
Adjusted R^2	0.2072	0.4695
Hausman	0.005	0.014
LM test	684.25***	684.25***

Notes: Model 1 = Debt to Total Assets, Model 2 = debt to equity; CFETR = cash flow effective tax rate; BTD = book-to-tax differences; TA = total accruals; FSize = firm size; TAN = tangibility; ROE = return on assets; IND = industry type.

***; **; * indicate 1, 5, and 10% levels, respectively.

Table 8. Regression result using lag variable (debt to total assets).

	Coeff	z-value
CFETR	−0.016	−0.01
CETR	−0.961	−3.16***
BTD	−0.102	−1.30***
TA	0.153	3.09***
Fsize	0.005	0.25
TAN	0.215	5.14**
ROE	0.009	1.68*
IND	0.067	1.41
Const	−0.094	−0.43

CFETR = cash flow effective tax rate; CETR = cash effective tax rate, BTD = book-to-tax differences; TA = total accruals; FSize = firm size; TAN = tangibility; ROE = return on assets; IND = industry type.

***; **; * indicate 1, 5, and 10% levels, respectively.

Table 9. Regression result using lag variable (debt to equity).

	Coeff	z-value
CFETR	0.202	−0.75
CETR	−23.70	−4.68***
BTD	−5.280	−4.09***
TA	0.734	0.81
Fsize	0.092	0.92
TAN	0.700	1.94*
ROE	0.92	10.58***
IND	0.258	1.38
Const	−0.468	−0.49

CFETR = cash flow effective tax rate; CETR = cash effective tax rate, BTD = book-to-tax differences; TA = total accruals; FSize = firm size; TAN = tangibility; ROE = return on assets; IND = industry type.

***; **; * indicate 1, 5, and 10% levels, respectively.

Sani, A. A., Abdul Latif, R., & Al-Dhamari, R. A. (2020). CEO discretion, political connection and real earnings management in Nigeria. Management Research Review, 43(8), 909–929. https://doi.org/10.1108/MRR-12-2018-0460

 Web of Science ®Google Scholar

Al-Absy, M. S. M. (2022). Impactful women directors and earnings management. Cogent Business & Management, 9(1), 2148873. https://doi.org/10.1080/23311975.2022.2148873

 Web of Science ®Google Scholar

Elmagrhi, M. H., Ntim, C. G., Malagila, J., Fosu, S., & Tunyi, A. A. (2018). Trustee board diversity, governance mechanisms, capital structure and performance in UK charities. Corporate Governance: The International Journal of Business in Society, 18(3), 478–508. https://doi.org/10.1108/CG-08-2017-0185

 Web of Science ®Google Scholar

Sunardi, N., Husain, T., & Kadim, A. (2020). Determinants of debt policy and company’s performance. International Journal of Economics and Business Administration, VIII(Issue 4), 204–213. https://doi.org/10.35808/ijeba/580

 Google Scholar

Alkurdi, A., & Mardini, G. H. (2020). The impact of ownership structure and the board of directors’ composition on tax avoidance strategies: empirical evidence from Jordan. Journal of Financial Reporting and Accounting, 18(4), 795–812. https://doi.org/10.1108/JFRA-01-2020-0001

 Web of Science ®Google Scholar

Khanh, H. T. M., & Khuong, N. K. (2019). Does corporate tax avoidance influence firm leverage of Vietnamese listed companies? Theoretical Economics Letters, 9(4), 1070–1078. https://doi.org/10.4236/tel.[phone]

 Google Scholar

Jaffar, R., Derashid, C., & Taha, R. (2021). Determinants of tax aggressiveness: empirical evidence from Malaysia. Journal of Asian Finance, Economics and Business, 8(5), 179–188.

 Web of Science ®Google Scholar

Abdul Wahab, N. S., Ntim, C. G., Mohd Adnan, M. M., & Tye, W. L. (2018). Top management team heterogeneity, governance changes and book-tax differences. Journal of International Accounting, Auditing and Taxation, 32, 30–46. https://doi.org/10.1016/j.intaccaudtax.2018.07.002

 Google Scholar

Santa, S. L. L., & Rezende, A. J. (2016). Corporate tax avoidance and firm value: from Brazil. Revista Contemporânea de Contabilidade, 13(30), 114–133. https://doi.org/10.5007/2175-8069.2016v13n30p114

 Google Scholar

Bayraktaroglu, A. E., Calisir, F., & Baskak, M. (2019). Intellectual capital and firm performance: an extended VAIC model. Journal of Intellectual Capital, 20(3), 406–425. https://doi.org/10.1108/JIC-12-2017-0184

 Web of Science ®Google Scholar

Al-Absy, M., & Hasan, M. (2023). Impact of the board of directors’ characteristics on firm performance: A case of Bahraini listed firms. Problems and Perspectives in Management, 21(1), 291–301. https://doi.org/10.21511/ppm.21(1).2023.25

 Google Scholar

Razali, M. W. M., Ghazali, S. S., Lunyai, J., & Hwang, J. Y. T. (2018). Tax planning and firm value: evidence from Malaysia. International Journal of Academic Research in Business and Social Sciences, 8(11), 210–222. https://doi.org/10.6007/IJARBSS/v8-i11/4896

 Google Scholar

Sani, A. A., Latif, R. A., & Dhamari, R. A. (2021). Corporate board monitoring, political connection and real earnings management practice in Nigeria. Afro-Asian J. of Finance and Accounting, 11(3), 423–446. https://doi.org/10.1504/AAJFA.2021.115668

 Google Scholar

Data availability statement

The data presented in this study will be available upon request from the corresponding author.