MODERATING EFFECT OF BOARD INDEPENDENCE ON THE RELATIONSHIP BETWEEN FIRM ATTRIBUTES AND TAX AGGRESSIVENESS: EMPIRICAL EVIDENCE FROM THE NIGERIAN BANKS
Keywords:
Board Independence, Firm Size, Profitability, Leverage, Tax Aggressiveness.
Abstract
Despite increased evidence of the critical role of corporate governance in shaping business behaviour, there is still a lack of understanding of how board independence moderates the relationship between firm qualities and tax aggression, particularly in the context of Nigerian banks. This study examines the moderating effect of board independence on firm attributes and tax aggressiveness relationship in Nigerian banks spanning 2012 to 2022. The firm attribute was proxy as firm size, profitability, leverage, and board independence, while tax aggressive was proxy as the effective tax rate. The data was collected from eleven listed commercial banks in Nigeria. Data analysis were performed using random effects based on the Hausman test. The study concludes that larger banks tend to engage less in tax aggressive strategies than smaller banks. Also, boards with more independent directors tend to be less aggressive in tax activities. In addition, the study concludes that highly leveraged firms have a greater interest in minimising taxes to enhance cash flows available for debt service. Furthermore, when the moderating effect of board independence is introduced, the study concludes that the relationship between profitability and tax aggressiveness was insignificant. Furthermore, larger banks engage in tax aggressiveness when independent directors are involved. More so, the moderating effect of board independent directors will cause a reduction in tax aggressiveness as leverage increases. The study suggest that banks management be encouraged to conduct benchmarking exercises and peer comparisons to assess their tax practices to industry standards. This can help identify outliers and promote a more standardised and responsible approach to tax planning.
JEL Classification Codes: M4, M41, M480.
References
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Adela, V., Agyei, S. K., & Peprah, J. A. (2023). Antecedents of tax aggressiveness of listed non-financial firms: evidence from an emerging economy, Scientific African, 20, 16-54. https://doi.org/10.1016/j.sciaf.2023.e01654
Aliani, K., & Zarai, M. A. (2012). Demographic Diversity in the board and corporate tax planning in American firms. Business Management and Strategy, 3(1), 72-86. 10.5296/bms.v3i1.1851
Alshabibi, B., Pria, S., & Hussainey, K. (2022). Nationality diversity in corporate boards and tax avoidance: Evidence from Oman, Administrative Sciences 12. https://doi.org/10.3390/ admsci12030111
Anyaduba, J. O., & Ogbeide, I. O. (2022). Firm attributes and corporate tax aggressiveness: A comparative study of Nigeria and South Africa banks, Accounting and Finance Research, 11(2), 18-34. https://doi.org/10.5430/afr.v11n2p18
Armstrong, C. S., Blouin, J. L., Jagolinzer, A. D., & Larcker, D. F. (2015). Corporate governance, incentives, and tax avoidance. Journal of Accounting and Economics, 60(1), 1-17. https://dx.doi.org/10.2139/ssrn.2252682
Barney, J. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 17, 99-120. http://dx.doi.org/10.1177/014920639101700108
Chen, S., Chen, X., Cheng, Q., & Shevlin, T. (2010). Are family firms more tax aggressive than non-family firms? Journal of Financial Economics, 95(1), 41-61. https://doi.org/10.1016/j.jfineco.2009.02.003
Chen, S., Huang, Y., Li, N., & Shevlin, T. (2019). How does quasi-indexer ownership affect corporate tax planning? Journal of Accounting and Economics, 67, 278–296. https://dx.doi.org/10.1016/j.jacceco.2018.01.001
Chytis, E., Tasios, S., & Filos, I. (2020). The effect of corporate governance mechanisms on tax planning during financial crisis: an empirical study of companies listed on the Athens stock exchange. International Journal of Disclosure and Governance, 17(1), 30–38. https://dx.doi.org/10.1057/s41310-020-00072-3
Czarnitzki, D., & Delanote, J. (2015). R&D policies for small and medium-sized enterprises. Research Policy, 44(9), 1719-1733 https://dx.doi.org/10.1007/s11187-015-9661-1
Desai, M. A., & Dharmapala, D. (2006). Corporate tax avoidance and high-powered incentives. Journal of Financial Economics, 79(1), 145-179. https://doi.org/10.1016/j.jfineco.2005.02.002
Desai, M. A., & Dharmapala, D. (2009). Corporate tax avoidance and firm value. The Review of Economics and Statistics, 91(3), 537-546. https://doi.org/10.2139/ssrn.689562
Dhaliwal, D. S., Huang, S., & Moser, W. (2011). Managerial properties, equity issuances, and agency costs of debt. Journal of Accounting and Economics, 51(1-2), 49-61. https://dx.doi.org/10.2139/ssrn.1905076
Dyreng, S. D., Hanlon, M., & Maydew, E. L. (2010). The effects of executives on corporate tax avoidance. The Accounting Review, 85(4), 1163-1189. https://doi.org/10.2308/accr.2010.85.4.1163
Ezugwu, C. I., & Akubo, D. (2014). Effect of high corporate tax rate on the liquidity of corporate organisations in Nigeria: A study of some selected corporate organisations: Mediterranean Journal of Social Sciences, 5(20), 310-321. https://dx.doi.org/10.5901/mjss.2014.v5n20p310
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301-325. http://dx.doi.org/10.1086/467037
Graham, J. R., & Tucker, A. L. (2006). Tax shelters and corporate debt policy. Journal of Financial Economics, 81(3), 563-594. http://dx.doi.org/10.1016/j.jfineco.2005.09.002
Graham, J. R., Raedy, J. S., & Shackelford, D. A. (2012). Research in accounting for income taxes. Journal of Accounting and Economics, 53(1-2), 412-434. https://dx.doi.org/10.1016/j.jacceco.2011.11.006
Hanlon, M., & Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics, 50(2-3), 127-178. http://dx.doi.org/10.1016/j.jacceco.2010.09.002
Hanlon, M., & Slemrod, J. (2009). What does tax aggressiveness signal? Evidence from stock price reactions to news about tax shelter involvement. Journal of Public Economics, 93(1-2), 126-141. https://doi.org/10.1016/j.jpubeco.2008.09.004
Hausman, J. A. (1978). Specification tests in econometrics, Econometrica, 46, 1251-1271. https://doi.org/10.2307/1913827
Husnain, M., Akbar, M. I., Anwar, M. M., & Khan, M. T. (2021). The influence of corporate diversification on tax policy: Moderating the role of firm size in the emerging economy. International Journal of Innovation, Creativity and Change, 15(8), 114-137. Retrieved from https://www.semanticscholar.org/paper/The-Influence-of-Corporate-Diversification-on-Tax-Husnaina-Akbarb/f51f7341835649387fae98d758b34354d4c90d65
Indriani, M. D., & Juniarti, J. (2020). Influence of company size, company age, sales growth, and profitability on tax avoidance, Indonesian College of Economics, 1-18. Retrieved from http://repository.stei.ac.id/id/eprint/2123
Khaoula, F., & Moez, D. (2019). The moderating effect of the board of directors on firm value and tax planning: Evidence from European listed firms, Borsa Istanbul Review, 19(4), 331- 343. https://doi.org/10.1016/j.bir.2019.07.005
Kovermann, J., & Velte, P. (2019). The impact of corporate governance on corporate tax avoidance – A literature review, Journal of International Accounting, Auditing and Taxation, 36, 1-19. https://doi.org/10.1016/j.intaccaudtax.2019.100270
Madugba, J. U., Ben-Caleb, E., Lawal, A. I., & Agburuga, U. T. (2020). Firm size and tax saving behaviour of listed companies in Nigeria, Academic Journal of Interdisciplinary Studies, 9(3), 184-193. https://doi.org/10.36941/ajis-2020-0054
Ogbeide, I. O., Anyaduba, J. O., & Akogo, O. U. (2022). Firm attributes and corporate tax aggressiveness in Nigeria, American Journal of Finance, 7(2), 64-87. https://doi.org/10.47672/ajf.1100
Ogbodo, O. C., & Omonigho, A. J. (2021). Corporate governance and tax avoidance of quoted consumer goods manufacturing companies in Nigeria, International Journal of Advanced Academic Research, 7(7), 17-51. https://dx.doi.org/10.46654/ij.24889849.s7714
Okerekeoti, C. U. (2022). Effect of firm attributes on tax avoidance or food production companies in Nigeria, International Journal of Research Publication and Reviews, 3(5), 1296-1305. Retrieved from https://ijrpr.com/uploads/V3ISSUE5/IJRPR4033.pdf
Omesi, I., & Appah, E. (2021). Corporate governance and tax avoidance of listed consumer and industrial goods companies in Nigeria, Journal of Economics and Finance, 12(2), 17-31. https://dx.doi.org/10.9790/5933-1202041731
Osamudiame, O. R., Godwin, O. O., & Imuentinyan, E. C. (2019). Corporate attributes and tax aggressiveness in listed Nigerian companies, Journal of Accounting, Business and Social Sciences, 2(1), 119-135. Retrieved from https://www.abacademies.org/articles/tax-aggressiveness-and-timeliness-of-financial-reporting-in-nigeria-financial-sector-11481.html
Peter, Z., Hamid, T. K., & Ibrahim, M. (2020). Board attributes and tax planning of listed non-financial companies in Nigeria, International Journal of Accounting & Finance, 9(1), 132-148. Retrieved from https://www.cnaj.anan.org.ng/article-details.php?article=6
Ryandono, M. N. H., Ernayani, R., Atmojo, P., Susilowati, D., & Indriastuty, N. (2020). Factors influencing tax avoidance in Indonesia, 8(1), 366–372. https://doi.org/10.18510/hssr.2020.8147
Salaudeen, Y. M., Ejeh, B. U. (2018). Equity ownership structure and corporate tax aggressiveness: the Nigerian context. Research Journal of Business and Management, 5(2), 90-99. http://doi.org/10.17261/Pressacademia.2018.828
Waruwu, F. Z., & Kartikaningdyah, E. (2019). The effect of firm size, ROA and executive character on tax avoidance, Advances in Social Science, Education and Humanities Research, 337, 117-124. Retrieved from https://www.atlantis-press.com/article/125925908.pdf
Yahaya, K. A., & Yusuf, K. (2020). Impact of company characteristics on aggressive tax avoidance in Nigerian listed insurance companies, Journal Administrasi Bisnis, 9(2), 101-111. https://doi.org/10.14710/jab.v9i2.30512
Zachariah, P., Tahir, K. H., & Mohammed, I. (2020). Board attributes and tax planning of listed non-financial companies in Nigeria. International journal of accounting & finance, 9(1), 130- 146.
Adams, S. O., & Balogun, P. O. (2020). Panel data analysis on corporate effective tax rates of some listed large firms in Nigeria, Dutch Journal of Finance and Management, 4(2), 1-9. https://doi.org/10.21601/djfm/9345
Adela, V., Agyei, S. K., & Peprah, J. A. (2023). Antecedents of tax aggressiveness of listed non-financial firms: evidence from an emerging economy, Scientific African, 20, 16-54. https://doi.org/10.1016/j.sciaf.2023.e01654
Aliani, K., & Zarai, M. A. (2012). Demographic Diversity in the board and corporate tax planning in American firms. Business Management and Strategy, 3(1), 72-86. 10.5296/bms.v3i1.1851
Alshabibi, B., Pria, S., & Hussainey, K. (2022). Nationality diversity in corporate boards and tax avoidance: Evidence from Oman, Administrative Sciences 12. https://doi.org/10.3390/ admsci12030111
Anyaduba, J. O., & Ogbeide, I. O. (2022). Firm attributes and corporate tax aggressiveness: A comparative study of Nigeria and South Africa banks, Accounting and Finance Research, 11(2), 18-34. https://doi.org/10.5430/afr.v11n2p18
Armstrong, C. S., Blouin, J. L., Jagolinzer, A. D., & Larcker, D. F. (2015). Corporate governance, incentives, and tax avoidance. Journal of Accounting and Economics, 60(1), 1-17. https://dx.doi.org/10.2139/ssrn.2252682
Barney, J. (1991). Firm Resources and Sustained Competitive Advantage. Journal of Management, 17, 99-120. http://dx.doi.org/10.1177/014920639101700108
Chen, S., Chen, X., Cheng, Q., & Shevlin, T. (2010). Are family firms more tax aggressive than non-family firms? Journal of Financial Economics, 95(1), 41-61. https://doi.org/10.1016/j.jfineco.2009.02.003
Chen, S., Huang, Y., Li, N., & Shevlin, T. (2019). How does quasi-indexer ownership affect corporate tax planning? Journal of Accounting and Economics, 67, 278–296. https://dx.doi.org/10.1016/j.jacceco.2018.01.001
Chytis, E., Tasios, S., & Filos, I. (2020). The effect of corporate governance mechanisms on tax planning during financial crisis: an empirical study of companies listed on the Athens stock exchange. International Journal of Disclosure and Governance, 17(1), 30–38. https://dx.doi.org/10.1057/s41310-020-00072-3
Czarnitzki, D., & Delanote, J. (2015). R&D policies for small and medium-sized enterprises. Research Policy, 44(9), 1719-1733 https://dx.doi.org/10.1007/s11187-015-9661-1
Desai, M. A., & Dharmapala, D. (2006). Corporate tax avoidance and high-powered incentives. Journal of Financial Economics, 79(1), 145-179. https://doi.org/10.1016/j.jfineco.2005.02.002
Desai, M. A., & Dharmapala, D. (2009). Corporate tax avoidance and firm value. The Review of Economics and Statistics, 91(3), 537-546. https://doi.org/10.2139/ssrn.689562
Dhaliwal, D. S., Huang, S., & Moser, W. (2011). Managerial properties, equity issuances, and agency costs of debt. Journal of Accounting and Economics, 51(1-2), 49-61. https://dx.doi.org/10.2139/ssrn.1905076
Dyreng, S. D., Hanlon, M., & Maydew, E. L. (2010). The effects of executives on corporate tax avoidance. The Accounting Review, 85(4), 1163-1189. https://doi.org/10.2308/accr.2010.85.4.1163
Ezugwu, C. I., & Akubo, D. (2014). Effect of high corporate tax rate on the liquidity of corporate organisations in Nigeria: A study of some selected corporate organisations: Mediterranean Journal of Social Sciences, 5(20), 310-321. https://dx.doi.org/10.5901/mjss.2014.v5n20p310
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301-325. http://dx.doi.org/10.1086/467037
Graham, J. R., & Tucker, A. L. (2006). Tax shelters and corporate debt policy. Journal of Financial Economics, 81(3), 563-594. http://dx.doi.org/10.1016/j.jfineco.2005.09.002
Graham, J. R., Raedy, J. S., & Shackelford, D. A. (2012). Research in accounting for income taxes. Journal of Accounting and Economics, 53(1-2), 412-434. https://dx.doi.org/10.1016/j.jacceco.2011.11.006
Hanlon, M., & Heitzman, S. (2010). A review of tax research. Journal of Accounting and Economics, 50(2-3), 127-178. http://dx.doi.org/10.1016/j.jacceco.2010.09.002
Hanlon, M., & Slemrod, J. (2009). What does tax aggressiveness signal? Evidence from stock price reactions to news about tax shelter involvement. Journal of Public Economics, 93(1-2), 126-141. https://doi.org/10.1016/j.jpubeco.2008.09.004
Hausman, J. A. (1978). Specification tests in econometrics, Econometrica, 46, 1251-1271. https://doi.org/10.2307/1913827
Husnain, M., Akbar, M. I., Anwar, M. M., & Khan, M. T. (2021). The influence of corporate diversification on tax policy: Moderating the role of firm size in the emerging economy. International Journal of Innovation, Creativity and Change, 15(8), 114-137. Retrieved from https://www.semanticscholar.org/paper/The-Influence-of-Corporate-Diversification-on-Tax-Husnaina-Akbarb/f51f7341835649387fae98d758b34354d4c90d65
Indriani, M. D., & Juniarti, J. (2020). Influence of company size, company age, sales growth, and profitability on tax avoidance, Indonesian College of Economics, 1-18. Retrieved from http://repository.stei.ac.id/id/eprint/2123
Khaoula, F., & Moez, D. (2019). The moderating effect of the board of directors on firm value and tax planning: Evidence from European listed firms, Borsa Istanbul Review, 19(4), 331- 343. https://doi.org/10.1016/j.bir.2019.07.005
Kovermann, J., & Velte, P. (2019). The impact of corporate governance on corporate tax avoidance – A literature review, Journal of International Accounting, Auditing and Taxation, 36, 1-19. https://doi.org/10.1016/j.intaccaudtax.2019.100270
Madugba, J. U., Ben-Caleb, E., Lawal, A. I., & Agburuga, U. T. (2020). Firm size and tax saving behaviour of listed companies in Nigeria, Academic Journal of Interdisciplinary Studies, 9(3), 184-193. https://doi.org/10.36941/ajis-2020-0054
Ogbeide, I. O., Anyaduba, J. O., & Akogo, O. U. (2022). Firm attributes and corporate tax aggressiveness in Nigeria, American Journal of Finance, 7(2), 64-87. https://doi.org/10.47672/ajf.1100
Ogbodo, O. C., & Omonigho, A. J. (2021). Corporate governance and tax avoidance of quoted consumer goods manufacturing companies in Nigeria, International Journal of Advanced Academic Research, 7(7), 17-51. https://dx.doi.org/10.46654/ij.24889849.s7714
Okerekeoti, C. U. (2022). Effect of firm attributes on tax avoidance or food production companies in Nigeria, International Journal of Research Publication and Reviews, 3(5), 1296-1305. Retrieved from https://ijrpr.com/uploads/V3ISSUE5/IJRPR4033.pdf
Omesi, I., & Appah, E. (2021). Corporate governance and tax avoidance of listed consumer and industrial goods companies in Nigeria, Journal of Economics and Finance, 12(2), 17-31. https://dx.doi.org/10.9790/5933-1202041731
Osamudiame, O. R., Godwin, O. O., & Imuentinyan, E. C. (2019). Corporate attributes and tax aggressiveness in listed Nigerian companies, Journal of Accounting, Business and Social Sciences, 2(1), 119-135. Retrieved from https://www.abacademies.org/articles/tax-aggressiveness-and-timeliness-of-financial-reporting-in-nigeria-financial-sector-11481.html
Peter, Z., Hamid, T. K., & Ibrahim, M. (2020). Board attributes and tax planning of listed non-financial companies in Nigeria, International Journal of Accounting & Finance, 9(1), 132-148. Retrieved from https://www.cnaj.anan.org.ng/article-details.php?article=6
Ryandono, M. N. H., Ernayani, R., Atmojo, P., Susilowati, D., & Indriastuty, N. (2020). Factors influencing tax avoidance in Indonesia, 8(1), 366–372. https://doi.org/10.18510/hssr.2020.8147
Salaudeen, Y. M., Ejeh, B. U. (2018). Equity ownership structure and corporate tax aggressiveness: the Nigerian context. Research Journal of Business and Management, 5(2), 90-99. http://doi.org/10.17261/Pressacademia.2018.828
Waruwu, F. Z., & Kartikaningdyah, E. (2019). The effect of firm size, ROA and executive character on tax avoidance, Advances in Social Science, Education and Humanities Research, 337, 117-124. Retrieved from https://www.atlantis-press.com/article/125925908.pdf
Yahaya, K. A., & Yusuf, K. (2020). Impact of company characteristics on aggressive tax avoidance in Nigerian listed insurance companies, Journal Administrasi Bisnis, 9(2), 101-111. https://doi.org/10.14710/jab.v9i2.30512
Zachariah, P., Tahir, K. H., & Mohammed, I. (2020). Board attributes and tax planning of listed non-financial companies in Nigeria. International journal of accounting & finance, 9(1), 130- 146.
Published
2024-02-06
How to Cite
Ebire, K., Musa, A. A., & Onmonya, L. (2024). MODERATING EFFECT OF BOARD INDEPENDENCE ON THE RELATIONSHIP BETWEEN FIRM ATTRIBUTES AND TAX AGGRESSIVENESS: EMPIRICAL EVIDENCE FROM THE NIGERIAN BANKS. International Journal of Accounting & Finance Review, 15(1), 1-9. https://doi.org/10.46281/ijafr.v15i1.2184
Section
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper
Copyright (c) 2024 Kolawole Ebire, Anthony Ahmed Musa, Lucky Onmonya
This work is licensed under a Creative Commons Attribution 4.0 International License.
