Tax Shields and Financial Performance of Listed Manufacturing Firms in Nigeria
Abstract
The main objective of this study is to examine the effect of tax shields on financial performance of listed manufacturing firms in Nigeria. The study relied on ex post facto research design. Data from the study is gotten from annual reports of 14 listed manufacturing companies on the Nigerian Exchange Group who are judgmentally sampled from a population of 56 listed manufacturing firms. The study employed the use of Panel regression in analyzing the data gotten for the study. The first findings shows that non-debt tax shields and debt tax shields have positive insignificant effects on return on assets of listed manufacturing firms in Nigeria. Further findings show that, non-debt tax shields and debt tax shields have positive significant effects on return on equity of listed manufacturing firms in Nigeria. Thirdly, it is found that, non-debt tax shields and debt tax shields have positive insignificant effects on earnings per share of listed manufacturing firms in Nigeria. As a result of the study findings, it is recommended that, while tax shields are often considered beneficial, this study suggests that their impact may be limited in the manufacturing sector owing to financing cost factors that managers need to consider before making tax shield plans, also, understanding these findings in light of minimizing cost of interest and keeping optimal depreciation and amortization cost can help firms optimize their tax planning and ultimately improve return on equity. Furthermore, manufacturing firms in Nigeria focus on other factors influencing earnings per share rather than relying solely on tax shields. Exploring strategies like operational efficiency, cost management, and revenue growth may yield more significant and sustainable improvements in their earnings per share.
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