SOURCE:

Faculty: Management Sciences
Department: Accountancy

CONTRIBUTORS:

Onwuchekwa, J.C.
R. G. Okafor

ABSTRACT:

Tax aggressiveness is as old as taxation itself as whenever, authorities decide to levy taxes; individuals and organisations try to avoid paying them. This became popular through globalization as the range of opportunities to circumvent taxation while simultaneously reducing the risk of being detected grew. The study examined the effect of tax aggressiveness on the financial performance of manufacturing firms in Nigeria. The variables used to proxy tax aggressiveness are; thin capitalization, capital intensity, effective tax rate, research and development, age and firm size while profit before tax was used to proxy firm financial performance. Six research questions were asked from which we formulated our hypotheses in accordance with the objectives of our study. Data were collected from the annual reports of the manufacturing companies under study for the period 2008-2017 given us a total of 3000 observations. The data were analyzed in three-phase procedural steps: pre-estimation, estimation and post estimation. In the Pre-estimation test, we made use of the descriptive statistics in order to understand the nature of the data. The estimation test is the correlation matrix to check for the existence or otherwise of auto correlation among the explanatory variables while the post estimation test was done to determine the stationarity of the series and also to predict the existence of long-run effect between the explanatory variables and the dependent variable. The study shows that firm size, research and development and effective tax rate have significant effect on the profit before tax of manufacturing firms in Nigeria. The result also showed that thin capitalization, capital intensity, and age of a firm, does not have significant effect on profit before tax of manufacturing firms in Nigeria. It is therefore recommended, that manufacturing firms should be aggressive in improving their financial performance through aggressive marketing, diversification of their products and improving in her corporate social responsibility. Manufacturing firms should through the national assembly negotiate for a downward review of company income tax rate. When the tax burden on a firm is reduced; the leakages on tax revenue due from tax aggressiveness will be eliminated since companies will be encouraged to pay her taxes without policing.