TAX PLANNING AND FIRM VALUE IN NIGERIA

ABSTRACT

Many studies suggest that the financial directors of most quoted firms consider the reduction of their firm’s effective tax rate as the main objective of their tax department. Apparently, these firms believe that reducing the effective tax rate creates value for their shareholders. Recent interviews with investors and financial analysts, however, suggest they pay little attention to after tax earnings when valuing a firm. These investors and analysts do not believe that a company can sustainably outperform the firm’s statutory tax rate. They also think that tax information in the public accounts is so unclear that it is unusable for their valuations. Given this background, the study sought to examine the effect of tax planning on the value of firms listed at the Nigerian Stock Exchange. This study was designed as a causal predictive research design. Given that the purpose of this study was to examine the effect of tax avoidance on financial performance, this was the most appropriate design for the study. The population of this study was all the companies listed on the Nigerian Stock Exchange. Secondary data was sourced from the Nigerian Stock Exchange, respective company websites, and The African Financials website on the variables of interest for the five year period beginning 2016 to 2020 for 20 companies with complete data. A descriptive analysis was used to describe the data in terms of mean scores and standard deviations among other descriptive statistics. In order to examine the effect of tax planning on firm value, regression analysis was carried out. Since the data collected was panel data, the analysis was performed using panel data regression techniques with the aid of Eviews 7 analysis software. The study concludes that tax planning influences the value of listed firms in Nigeria. The study recommends the need for firms to institute more robust tax planning practices that will help reduce their effective tax liabilities and therefore improve their overall value. Firms that engage in better tax planning practices are likely to get higher firm value.