Corporate Tax Planning and Financial Performance of Quoted Food and Beverages Firms in Nigeria

Abstract

This study evaluated the effect of corporate tax planning on the financial performance of Quoted food and beverages firms in Nigeria, with a population comprising 15 quoted food and beverages firms on the Nigerian Stock Exchange for ten years between 2008-2018, forming the sample using total enumeration sampling method. The study employed ex-post facto research design. The validity and reliability of the instruments were based on the statutory audit of the financial statement and approval for use by the regulator. The data were analysed using descriptive and influential statistics. From the analysis done, it has shown that corporate tax planning variables of effective tax rate, capital intensity, thin capitalization do not have a significant positive effect on financial performance of a quoted food and beverages firm in Nigeria Adjusted R 2 = 0.069: F-statistic(input)=8.81, p= 0.0383<0.05). The analysis revealed that all proxies of corporate tax planning practices do not significant effect on return on capital employed of quoted food, and beverages firm in Nigeria (Adjusted R 2 = 0.038: F-statistic 1.09, p= 0.03537>0.05). All proxies of corporate tax planning practices have a significant positive effect on return on assets of the industry (Adjusted R 2 = 0.1095: F-statistic 37.76, p= 0.000<0.05). All proxies of corporate tax planning practices have no significant effect on return on equity of the industry (Adjusted R 2 = 0.0068: F-statistic 0.66, p= 0.957>0.05). Similarly, the result shows all proxies of corporate tax planning practices do not have a significant positive effect on earnings per share of the food and beverages industry (Adjusted R 2 = 0.068: F-statistic 1.34, p= 0.2639>0.05). Thus, the research concluded that corporate tax planning proxies of effective tax rate, capital intensity and thin capitalisation, has a significant positive effect on the performance of quoted food and beverages firms in Nigeria.

Thin capitalization and the profitability of consumer goods companies in Nigeria

“…Thin-cap companies are also referred to as highly geared or highly leveraged. How a company capitalizes often signi􀅫icantly impacts the amount of pro􀅫it it reports for tax purposes (Kayode & Folajinmi, 2020). Thin capitalization is a strategy businesses use to arrange their 􀅫inancing with a high debt-toequity ratio (Olamide, Azeez, & Adewale, 2019).…”

“…Consequently, a company's pro􀅫itability is determined using Return on Capital Employed (ROCE) after deducting net tax income. According to Kayode and Folajinmi (2020), ROCE is an accounting ratio that displays an organization's pro􀅫it for a given accounting period as a percentage of the capital spent. After accounting for capital expenditures, it is used to evaluate the relative pro􀅫itability of businesses (Batchimeg, 2017).…”

“…Akintoye, Adegbie, and Onyeka-Iheme (2020) state that while all businesses aspire to be pro􀅫itable, this is often unattainable because of high taxes and expenses. A company's capitalization strategy usually signi􀅫icantly impacts the reported pro􀅫itability level for tax purposes (Kayode & Folajinmi, 2020). Utilizing debt and equity allows one to assess a company's 􀅫inancial standing and potential.…”