Effect of Corporate Tax Aggressiveness on Firm Growth in Nigeria An Empirical Analysis

International Journal of Trend in Scientific Research and Development (IJTSRD)
International Open Access Journal | www.ijtsrd.com
ISSN No: 2456 - 6470 | Volume - 2 | Issue – 6 | Sep – Oct 2018
@ IJTSRD | Available Online @ www.ijtsrd.com | Volume – 2 | Issue – 6 | Sep-Oct 2018 Page: 1628
Effect of Corporate Tax Aggressiveness on Firm Growth in Nigeria:
An Empirical Analysis
Ifurueze, Meshack S.
Faculty of management sciences,
Department of Accountancy,
Chukwuemeka Odumegwu
Ojukwu University,
Igbariam, Nigeria
John-Akamelu, Racheal C.
Department of Entrepreneur
Studies Unit,
Nnamdi Azikiwe University,
Awka, Nigeria
Iyidiobi, Felicia C.
Department of Accountancy,
Enugu State University of Science
and Technology,
Enugu, Nigeria
ABSTRACT
The main objective of this study is to investigate the
effect of corporate tax aggressiveness strategies on
firm growth in Nigeria. The specific objectives were
to; investigate the effect of leverage tax
aggressiveness strategy on firm growth in Nigeria and
evaluate the effect of effective tax rate aggressiveness
strategy on firm growth in Nigeria. Ex post Facto
research design was adopted and the data were
collected from annual reports and accounts of
Nigerian food production companies. Pooled multiple
regression analysis was employed to test the
formulated hypotheses. The study found that
Leverage (LEV) to impact positively on our
dependent variable, Firm Growth. This impact was
not statistically significant. The study found that
Effective tax rate (ETR) to impact positive on our
dependent variable, Firm Growth, but this impact was
statistically significant. Since the influence of
effective tax rate is not statistically significant and so,
should be ignored as a determinant of firm growth in
Nigeria. Therefore on the basis of efficient use of tax
rate to generate growth should be encouraged.
KEY WORDS: Corporate tax aggressiveness,
leverage tax, effective tax rate and firm growth
INTRODUCTION
The concept of taxation is as old as mankind. It has
been an effective way of getting money from people
and institution to effectively run a society, at the same
time; it can be seen as a great way to take value and
income away from the people. It has been opined by
Leory and Babra (2008) that tax benefits cannot be
estranged from the tax system and that the benefit
cannot be separated away from equilibrium concern
and eventual business evaluation. However, the
modern tax as defined by Omotoso (2001) is the
compulsory charge imposed by a public authority on
the income of individuals and income of companies as
stipulated by the government decrees, acts or laws
irrespective of the exact amount of services rendered
to the payer in return. Tax administration on the other
hand can be described as the process of assessing and
collecting taxes from individuals and companies by
relevant tax authorities in such a way that the correct
amount is collected efficiently and effectively with
minimum tax avoidance or evasion.
The degree of tax aggressiveness will depend on the
characteristics of the owners of family firms and the
managers of non-family firms with respect to the costs
and benefits of corporate tax planning policies.
However, the relationship between the characteristic
of being a family firm and tax aggressiveness cannot
be clearly identified. Due to the greater block
holdings and longer investment horizons, the owners
of family firms need to be more concerned with the
potential penalties and the reduction of the share price
that can be caused by overly aggressive tax planning
(Antonio & Giliard , 2014).
Tax has been a crucial topic of discussion in the
literature. However, it focused more on economic side
than corporate side (Oboh, Yeye & Isa, 2003; Ifeuko
2008).Bulk of these studies has been looking at the
macro aspect of taxation with very little concentration
on the micro or corporate aspect of taxation .This is
one area the study is going to be more specific as it

International Journal of Trend in Scientific Research and Development (IJTSRD) ISSN: 2456-6470
tries to look to tax more precisely from the corporate
or micro aspect.
The studies have empirically tested the relationship
with inconclusive results. While some found
improvement in the accounting information quality of
some countries that adopted international accounting
standards which then helps to reduce tax
aggressiveness? Such studies include: Hanlon and
Slemrod (2009): Chenhall and Carla,(2010),Chun,
Hamid and Daniel (2012) While others like: Kao and
Wei, (2014) ,Lise and Roberto (2015) think otherwise.
Some researchers such as Leuz (2003) further argue
that, managers and controlling owners have the ability
to manage taxes in order to mask true firm
performance and to conceal their private control
benefits from outsiders.
In addition, most of these prior studies were carried
out in foreign countries in relation to the changes in
international financial reporting standard, this
however create gap in which this study set up to fill,
hence to domesticate the study in Nigerian corporate
firms.
The main objective of this study is to investigate the
effect of corporate tax aggressiveness strategies on
firm growth in Nigeria. The specific objectives were
to:
1. Investigate the effect of leverage tax
aggressiveness strategy on firm growth in Nigeria.
2. Evaluate the effect of effective tax rate
aggressiveness strategy on firm growth in Nigeria.
REVIEW OF RELATED LITERATURE
Conceptual Framework
Tax Aggressiveness
However, more of these works have been in
developed countries and the effect of accounting
reporting system has become very important as
different recording systems can give rise to loopholes
that can help company managers to aggressively hide
tax away from both the state and the shareholders.
Mills and News berry (2001) suggests that managers
have a more direct access to financial reporting than
to tax reporting, influencing accounting income rather
than tax income. Consequently, deferred taxation can
be increased or decreased according to management
earnings targets and how aggressive they choose to go
about it.
Every company that wants to operate more profitably
must equip herself with external source of funding
.This mostly and primarily comes from leverage more
than equity, since leverage is preferred to equity due
to the less complex and expensive process of getting
it. It can also be noted that most of the time,
corporation tax rates influences debt financing since
debt interest payments are typically tax deductible,
whereas dividend payments are not, as pointed out by
(Beke,2011).
It is, therefore, logical to believe that companies can
use debt induced strategies like debt inflation to
increase their tax reductions more aggressively than
companies that doesn’t have such debt, Joe-veer,
(2013), This, then suggests that a company with
interest tax advantage could increase or reduce its
debt profile in a way that it gives them some sort of
huge tax advantage. Tax aggressiveness can be proxy
by leverage, effective tax rate, book tax value, market
value and firm size.
Leverage
Leverage is the result of using borrowed capital as a
source of funding when investing to expand the firm’s
asset base and generate returns on risk capital.
Leverage is an investment strategy of using borrowed
money: specifically, the use of various financial
instruments or borrowed capital to increase the
potential return of an investment. Leverage can also
refer to the amount of debt used to finance assets.
When one refers to something (a company, a property
or an investment) as "highly leveraged," it means that,
the item has more debt than equity (Towery, 2012).
In finance, leverage (sometimes referred to, as gearing
in the United Kingdom and Australia) is any
technique involving the use of borrowed funds in the
purchase of an asset, with the expectation that the
after tax income from the asset and asset price
appreciation will exceed the borrowing cost.
Normally, the finance provider would set a limit on
how much risk, he is prepared to take and will set a
limit on how much leverage it will permit, and would
require the acquired asset to be provided as collateral
security for the loan. For example, for a residential
property, the finance provider may lend up to, say,
80% of the property's market value, for a commercial
property it may be up to 70%, while on shares it may
lend up to, say, 60% or none at all, on some shares.

Leveraging enables gains and losses to be multiplied.
On the other hand, there is a risk that leveraging will
result in a loss — i.e., when actually it turns out that
financing costs exceed the income from the asset, or
because the value of the asset has fallen.
While leverage magnifies profits when the returns
from the asset is more to offset the costs of
borrowing, leverage may also magnify losses. A
corporation that borrows too much money might face
bankruptcy or default during a business downturn,
while a less-leveraged corporation might survive. An
investor who buys a stock on 50% margin will lose
40% if the stock declines 20 % (Leory & Babra,
2008).
This may happen exactly when there is little market
liquidity and sales by others at depressing prices. It
means that as things get bad, leverage goes up,
multiplying losses as things continue to go down. This
can lead to rapid ruin, even if the underlying asset
value decline is mild or temporary. Leory and Babra
(2008) noted that the risk can be mitigated by
negotiating the terms of leverage, by maintaining
unused room for additional borrowing, and by
leveraging only liquid assets (Heitzman & Michelle,
2010).
On the other hand, the extreme level of leverage
affordable in forex trading presents relatively low risk
per unit due to its relative stability when compared
with other markets. Compared with other trading
markets, forex traders must trade at much higher
volume of units in order to make any considerable
profit. For example, many brokers offer 100:1
leverage for investors, meaning that someone bringing
₦1,000 can control ₦100,000 while taking
responsibility for any losses or gains their investments
incur. This intense level of leverage presents equal
parts to risk and reward.
There is an implicit assumption in that account, such
that the underlying levered asset is the same as the
unlevered one. If a company borrows money to
modernize, or add to its product line, or expand
internationally, the additional diversification might be
more to offset the additional risk from leverage
(Leory & Babra, 2008). Or if an investor uses a
fraction of his or her portfolio to manage stock index
futures and puts the rest in a money market fund, he
or she might have the same volatility and expected
return as an investor in an unlevered equity index
fund, with a limited downside Heitzman, (2010). Or if
both long and short positions are held by a pair-
trading stock strategy, the matching and off-setting
economic leverage may lower overall risk level.
So when adding leverage to a given asset always adds
risk, it is not also the case that a levered company or
investment is always riskier than an unlevered one. In
fact, many highly levered hedge funds have less
return volatility than unlevered bond funds, and public
utilities with lots of debt are usually less risky stocks
than unlevered technology companies (Leory & Babra
2008).
Effective Tax Rate: The effective tax rate is the
average taxation rate for a corporation or individual.
The effective tax rate for individuals is the average
rate at which their earned income is taxed, and the
effective tax rate for a corporation is the average rate
at which its pre-tax profits are taxed.(Jon 2012).
The effective tax rate is the average rate at which an
individual is taxed on earned income, or the average
rate at which a corporation is taxed on pre-tax profits
It is important to note that the amount of tax payments
in cash that an individual or corporation actually pays
out may differ materially from the amount of tax
expense in a given period. This is because most
companies prepare two different sets of financial
statements: one for reporting purposes and one for tax
purposes.
Economic Growth
Economic growth is the increase in the inflation-
adjusted market value of the goods and services
produced by an economy over time. It is
conventionally measured as the percent rate of
increase in real gross domestic product, or real GDP,
usually in per capita terms.
Growth is usually calculated in real terms – i.e.,
inflation-adjusted terms – to eliminate the distorting
effect of inflation on the price of goods produced.
Measurement of economic growth uses national
income accounting. Since economic growth is
measured as the annual percent change of gross
domestic product (GDP), it has all the advantages and
drawbacks of that measure. The "rate of economic
growth" refers to the geometric annual rate of growth
in GDP between the first and the last year over a
period of time. Implicitly, this growth rate is the trend
in the average level of GDP over the period, which

implicitly ignores the fluctuations in the GDP around
this trend.
An increase in economic growth caused by more
efficient use of inputs (such as labor productivity,
physical capital, energy or materials) is referred to as
intensive growth. GDP growth caused only by
increases in the amount of inputs available for use
(increased population, new territory) is called
extensive growth (Wikipedia, 2017).
Three waves of interest have currently emerged in
studying economic growth. The first wave is
associated with the work of Harrods (1900-1978) and
Domar (1914-1997) in what was termed the “Harrods
– Domar Model”. The theory presupposed that growth
depended on a country’s savings rate, capital/output
ratio, and capital depreciation. This theory has been
criticized for three reasons. Firstly, it centers on the
assumption of exogeneity for all key parameters.
Secondly, it ignores technical change, and lastly, it
does not allow for diminishing returns when one
factor expands relative to another (Essien, 2002).
The second began with the neoclassical (Solow)
model, which contained the thinking that growth
reflected technical progress and key inputs, (labour
and capital). It allowed for diminishing returns,
perfect competition but not externalities. In the
neoclassical growth process, savings were needed to
increase capital stock, capital accumulation had limits
to ensure diminishing marginal returns, and capital
per unit of labour was limited. It postulates that
growth also depended on population growth rate and
that growth rate amongst countries was supposed to
converge to a steady state in the long-run. Despite the
modifications, the basic problems associated with the
neoclassical thinking are that it hardly explains the
sources of technical change (Essien & Bawa, 2007).
Empirical Review
Lots of research has been conducted to assess the
extent tax aggressiveness affect firm growth.
Dhaliwal, Gleason, and Mills (2004) investigated
whether income tax expense is regularly used to
achieve earnings targets and concluded that
aggressive tax expense provides a final opportunity to
meet earnings targets after the firm has agreed to any
pre-tax adjusting entries required by the independent
auditors.
Similarly, Desai and Dharmapala (2006) supported
this argument. It is believe that the reporting quality
alone cannot provide sufficient support that will help
reduce tax aggressiveness of companies. Chen, Chen,
Chen et al. (2010) study the relationship between tax
aggressiveness and agency conflicts present in family
firms and non-family firms. The reason to deal with
these two types of companies separately is that,
according to the authors, the presence of members of
the founding family in the ownership structure implies
a greater potential for conflict between majority and
minority shareholders and a lesser one between
owners and managers in comparison to non-family
firms. This difference can impact the costs and
benefits of implementing more or less aggressive tax
policies.
Donohue (2011) examined why derivatives are
appealing for tax avoidance, how they reduce explicit
taxes, and which firms use them to avoid taxes. Using
multiple regression analysis, he finds that derivatives
are useful for avoiding taxes because they enable the
replication of economic positions, which blurs
economic substance and industrial ambiguity in tax
reporting, also tax aggressiveness derivatives users
have several commonalties which includes foreign
operators, more capital assets, and the use of auditor-
provided tax security and industry-specialist auditors.
Towery (2012) examined the effect of mandatory
disclosures of tax aggressiveness to tax authorities on
firms’ reporting decisions. Schedule UTP requires
firms to disclose federal income tax positions to the
Internal Revenue Service that have been classified as
‘uncertain’ for financial reporting purposes. In
showing how Schedule UTP disclosure requirements
affect private and public reporting decisions, the study
provide insights into the usefulness of these
disclosures. Using confidential tax return data and
public financial statement data, the study find that
after imposition of Schedule UTP reporting
requirements, firms report lower financial reporting
reserves for uncertain income tax positions, but do not
claim fewer income tax benefits on their federal tax
returns. These findings suggest that some firms
changed their financial reporting for uncertain tax
positions to avoid Schedule UTP reporting
requirements without changing the underlying
positions.
Jon (2012) provided evidence on a significant real
consequence of an opaque financial reporting

information environment: increased corporate tax
aggressiveness. Using an international sample of
firms, the study find that firms with a more opaque
information environment, as measured at both the
firm and country level, exhibit higher levels of firm-
specific tax avoidance. Similarly, the results from
tests using the initial enforcement of insider trading
laws provide additional support for a directional
hypothesis. In support of the firm-level findings, also
find evidence in the aggregate that opacity is
associated with countries collecting less corporate tax
revenues as a percentage of gross domestic products.
Blaufus and Zinowsky (2013) analyzed how the Big
Five personality traits and professional experience
affect the aggressiveness of tax preparers’
recommendations. To this aim, they conduct a survey
among tax professionals of a Big Four accounting
firms. Using treatment-effects regressions, the study
find that personality traits have direct and indirect
effects on tax aggressiveness. Personality traits affect
the decision to remain in the organizational
environment of the Big Four accounting firm, and the
experience in this firm is significantly related to tax
aggressiveness. Their data suggest that enhancing
work experience at the accounting firm leads to lower
tax aggressiveness and that the organizational culture
appears to be an important determinant of tax
aggressiveness. Moreover, they provide evidence that
the danger of potential reputation losses reduces
subjects to tax aggressiveness regardless of whether
the subject is highly experienced or not.
Fuest, Spengel, Finke, et al (2013) discussed the issue
of profit shifting and “aggressive” tax planning by
multinational firms. The paper makes two
contributions. First, it provides some background
information to the debate by giving a brief overview
of existing empirical studies on profit shifting and by
describing arrangements for IP-based profit shifting
which are used by the companies currently accused of
avoiding taxes. The study shows that preventing this
type of tax avoidance is, in principle, straightforward.
Second, they argue that, in the short term, policy
makers should focus on extending withholding taxes
in an internationally coordinated way.
Guenther, Matsunaga and Williams (2013)
distinguished between the concepts of tax avoidance,
tax aggressiveness, and tax risk and examine which, if
any, of those concepts is related to overall firm risk.
Prior research has argued that aggressive corporate
tax avoidance, as measured by low cash effective tax
rates or high reserves for unrecognized tax benefits,
increases firm risk, thereby requiring firms to provide
risk-taking incentives to managers. They found a
significantly positive relationship between tax risk
and firm risk, but do not find evidence of a significant
association between either tax avoidance or tax
aggressiveness and firm risk.
Razak and Adafula (2013) examined the influence of
attitudes of individual taxpayers on tax compliance
decisions. Descriptive and inferential statistics were
applied to analyze survey responses and firm
questionnaires administered to operators of SMEs in
Tamahe. They found that individuals are highly
concerned with the amount of taxes they pay. Again,
it was revealed that, the level of governmental
accountability and transparency did not significantly
impact taxpayer’s attitudes.
Fukofuka (2013) examined the prediction of tax
evasion and their usefulness for identifying tax
evasion. Through presentation of contextual
framework of corporate income tax evasion,
structured with twelve ideas and twenty-five dynamic
with sample game theory model. They found that in
order to promote the tax audit cut-off policy that
incorporates reward programme for agent of
government, you must ensure that audit frequency and
tasks independence of the agent of government are put
in place.
Chyz, Gaertner, Kausar et al (2014) investigated
whether firms with overconfident CEOs pursue more
aggressive tax positions and yet assign high
expectations of their final reliability, even if these
positions were to be audited by a relevant taxing
authority. In their empirical tests they first document
positive associations between proxies for the
aggressiveness of firms’ tax positions and
overconfidence. They then test for associations
between overconfidence and the financial reporting of
uncertain tax benefits under FIN 48. Prior tax
aggressiveness research leads to the expectation of a
similarly positive association with uncertain tax
benefits. Instead, the study found that the same group
of firms with overconfident CEOs report lowers
uncertain tax benefits in the financial statements.
Saratu (2015) examined the impact of competition on
tax avoidance activities among Nigerian Deposit
Money Banks. The study used panel regression model

to analyze the data obtained from the financial
statements of 15 banks operating on the Nigerian
Stock Exchange for a period of 10 years. The result of
the random effect revealed that competition has a
positive and an insignificant impact on tax avoidance.
Watson (2015) investigated the influence of pre-tax
earnings performance on the relationship between
corporate social responsibility (CSR) and tax
avoidance. Using slack resource theory of
Penrose1959, he found that the relationship between
CSR and tax avoidance in firms is moderated by
earnings performance.
Aumeenon, Jufurnath and Soondrun (2016) measured
the impact of the tax evasion on the Gross Domestic
Product (GDP) per-capita of Sub- Saharan Africa. The
relationship between the GDP per capita and tax
evasion is tested using the generalized least squared.
They found that there is a positive impact of tax
evasion on GDP per capita.
Kourdoumpalou (2016) examined the association
between corporate governance practices and the
extent of tax evasion for the Greek. Using multiple
regression analysis, the researcher found that tax
evasion is lower when the chairman of board is also
the owner of the company and also that tax evasion is
higher when board members are also employees of the
company.
Abubakar (2017) examined why taxes in Harari were
multifaceted. Using literatures and accounts written
by different historians and various tax related
documents. It was found that taxes from Islamic view
point and manifestation of civilization in Harari were
responsible for taxes in Harari being multifaceted.
Babatunde, Ibukun and Oyeyemi (2017) examined the
impact of taxation on economic growth in Africa from
2004-2013.Descriptive statistics and stationary tests
using Augmented Dickey Fuslew (ADF) test, Leven
et al model and Shin Stat test. The study indicated that
tax revenue is positively related to GDP and promote
economic growth in Africa.
Chen and Lin (2017) investigate the effect of
information asymmetry on corporate tax avoidance,
using a difference-in- differences matching estimator
to assess the effects of changes in analyst coverage
caused by broker closures and mergers. They found
that firms avoid tax more aggressively after a
reduction in analyst coverage, also that the effect is
normally driven by firms with higher existing tax-
planning capacity eg. Smaller initial average and
smaller number of peer firms. The effect is more
prevalent in industries where reputation matters more
and in firms subject to less monitoring from tax
authorities.
Koutoupis, Drogalas and Pazarskus (2017) examined
the merger effects on the accounting performance of
Greek firms in parallel with their taxation impact,
during the period of economic crisis in Greece. The
study analyses twelve (12) accounting measures from
financial statements and financial ratios of a sample of
Greek listed firms in Athens Exchange from 2010-
2015. The study found that there is evidence that there
is some effect from the new GITC and it provides
function opportunities for capital gains, not subject to
tax from mergers, during the period of the economic
crisis in Greece.
Lisa De, Jordan and Jeri (2017) Assessed whether
common empirical tests reliably identify tax
avoidance. In order to determine the tax avoidance
largely depends on results generated using such tests.
They address this question by using a controlled
environment to examine the effectiveness of empirical
tests that use effective tax rates (ETR) and book-tax
differences (BTD) as tax avoidance proxies. They
used Comp -stat data with three tax avoidance
strategies and examine how reliably empirical tests
identify this incremental simulated tax avoidance, all
things being equal. They found that power varies with
the proxy and the type of tax avoidance.
Khan, Srinivasan and Tan (2017) examined new
evidence on the agency theory of corporate tax
aggressiveness, using the Russell index reconstitution
setting to isolate exogenous stocks to institutional
ownership and regression discontinuity design that
facilitates sharper identification of treatment effects.
They found that significant and discontinuous
increase in tax avoidance following Russell 2000,
increase ownership concentration in tax avoidance.
Vythelinqum, Soondram & Jugurnath (2017) assessed
the level of tax and identified factors that shape tax
morale in Mauritius, using a self-developed
questionnaire was distributed to 250 randomly
respondents and a logistic regression analysis was
used to analyze the data collected. The study found
that Socio-demographic and Socio-economic factors

have an impact on tax morale and it can be seen that
social norms, fairness and equity, trust in government
and in tax authority are determinants that shape tax
morale.
Wegener and Labelle (2017) examined the
relationship between business ethics and tax
aggressiveness. Building on the conceptual model of
corporate moral development, they hypothesize and
found a negative association between the level of
business ethics and tax aggressiveness. For our
sample of U.S. firms, companies with a higher level
of business ethics are less likely to be tax aggressive.
Our results are robust to the use of two proxies for tax
aggressiveness: the ‘mainstream’ effective-tax-rate
measure and the unrecognized tax benefit, which have
been identified as capturing them least and the most
aggressive tax positions respectively. While they
support their business ethics prediction in both their
models, they also found a positive relationship
between the quality of corporate governance
(measured without ethical characteristics generally
associated with good corporate governance) and tax
aggressiveness. Their interpretation of these results is
that, while ethical firms are concerned about paying
their fair share of taxes, shareholders’ interest still
comes first.
Abdul and Wang’ombe (2018) examined the
influences of measures of tax compliance costs on tax
compliance behavior among medium and large
taxpayers in Kenya. Using the structural equation
modeling (SEM) technique to establish the key cost
drivers built through survey data of 40% variations in
tax compliance behavior. The study found that tax
compliance in Kenya significantly declines with
increase in tax compliance costs.
Oduro, Asiedu and Tackie (2018) investigated the
factors that determine whether a tax payer would
evade tax or not. A cross-sectional survey, using
structural equation and modeling with bootstrapping
analysis and data from a sample of 1,052 tax payers
was analyzed. It was found that traditional factors and
institutional factors positively influenced tax evasion.
It is believed that the reporting quality alone cannot
provide sufficient support that will help reduce tax
aggressiveness of companies. Intention to manage
taxes aggressively is driven by some underlying
motives such as window dressing of financial reports
prior to public offering, to meet bonus targets in order
to increase regulatory benefits.
Dhaliwa, Gleason and Mills (2004) found that
aggressive tax expense provides a final opportunity to
meet earnings target. Desai and Dharmapala (2006)
supported the argument of Dhaliwa, Gleason and
Mills (2004) they stated that reporting quality alone
cannot provide sufficient support that will help reduce
tax aggressiveness of companies. Chen et al (2010)
found evidence that aggressiveness and agency
conflicts present in family firms and non-family firms
can impact that costs and benefits of implementing
more or less aggressive tax policies.
Lanis and Richardson (2013) showed that is a positive
and statistically significant association between
corporate tax aggressiveness and CSR disclosure.
Antonio and Giliard (2014) opined that there is a
significant relationship between classification as a
family firm and tax aggressiveness.
Harvey (2014) found that the degree of corporate tax
aggressiveness can ebb and flow depending upon the
legal environment. Lee, Alfreda and Minton (2015)
agreed that tax shelters and uncertain tax benefits can
be used as proxies for aggressive tax avoidance.
Watson (2015) and Amidu, Kwakye, Harvey and
Yorke (2016) found that the relationship between
CSR and tax avoidance in firms is moderated by
earnings performance. Chen and Lin (2017) found
that firms avoid tax more aggressively after a
reduction in analyst coverage. Mgbame, Chijioke-
Mgbame and Yekini (2017) found that there is a
negative relationship between CSR performance, firm
size and tax aggressiveness in Nigeria. Khan,
Srinivasan and Tan (2017) agreed that there is a
significant and discontinuous increase in tax
avoidance following Russell 2000, increase ownership
concentration in tax avoidance. Jeongho and
Chaechang (2017) believed that tax authorities can
regulate firms that engaged in tax avoidance and
encourage firms to conduct CSR activities. Wegner
and Labelle (2017) found a negative association
between the level of business ethics and tax
aggressiveness. Oduro, Asiedu and Tackie (2018)
established that traditional factors and institutional
factors positively influenced tax evasion.
From the above review, it is obvious that most of
these empirical studies were conducted in developed

countries, with only one or two study(s) in developing
nations like Nigeria.
METHODOLOGY
Research Design
Due to the nature of this study, Ex-Post facto research
design will be adopted. This is appropriate because
the study aims at measuring the relationship between
one variable and another in which the variables are
not manipulated.
Population of the Study
This study makes use of seven manufacturing
companies that are under foods product in Nigeria.
The study covered ten years annual reports and
accounts of these companies from 2007 to 2016.The
name of these companies under foods production in
Nigerian manufacturing companies are:
1. Big treat Nigerian plc,
2. Dangote Four Nigerian Plc,
3. Dangote Sugar Nigerian Plc,
4. Honeywell Flour mill Nigerian plc,
5. Nestle Nigerian Plc,
6. Cadbury Nigerian Plc,
7. UAC Nigerian plc.
In chosen the sample size, the researcher used
Stratified Random Sampling to select six foods
production in Nigeria for the sample size of the study.
This company (Big treat Nigerian Plc.) were not
selected for lack of availability of annual reports and
audited accounts.
Method of Data Analysis
To achieve the objectives of this study, the data
required were those of the discriminating variables
that include: effective tax rate and book-tax
difference. Hypotheses formulated for the study were
tested with the pooled multiple regression using E-
view 9.0 software package.
Decision rule:
Using SPSS, 5% is considered a normal significance
level. The accept reject criterion was based on the p-
value, alternative hypothesis will be accepted.
Model specification
The predicted probability the firm is engaged in tax
sheltering, computed as follows:
FMGRTH = β1LEVit + β2ETRit ……..……….…et
FMGRTH = β1LEVit …………….……...….……et
FMGRTH = β2ETRit ...……… ……………….…et
Where:
FMGRTH = Firm Growth
LEVit = Long term debt (DLTT) scaled by total assets
(AT) in year t;
ETR – effective tax rate = Total income tax expense /
earnings before income tax
Data analysis
Table 1: Descriptive statistics of the sampled companies
Variables Mean Max Min Std. Dev JB (P-value)
FMGRTH 5531891 2223564 -9113036 7432987 1.36(0.51)*
LEV 0.492625 0.777000 0.038000 0.203860 6.2625(0.04)*
ETR 0.243450 1.328000 -0.636000 -0.636000 107.80(0.00)*
Source: Researcher’s computation (2018)
Note: 1% level of significance
Table 1 shows the mean (average) for each of the
variables, their maximum values, minimum values,
standard deviation and Jarque-Bera (JB) Statistics
(normality test). The results in table 1 provided some
insight into the nature of the selected Nigerian quoted
companies that were used in this study.
Firstly, it was observed that on the average over the
ten (10) years periods (2007-2016), the sampled
quoted companies in Nigeria were characterized by
positive Firm Growth (PAT =5531891). However, it
was observed that during the period under study, that
the effective tax rate was approximately 24%.
Moreover, in table 1, the Jarque-Bera (JB) which test
for normality or the existence of outliers or extreme
values among the variables, shows that most of the
variables are normally distributed at 1% level of
significance except Leverage (LEV) is distributed at
5%. This means that any variables with outlier are not
likely to distort our conclusion and are therefore
reliable for drawing generalization. This also implies
that the least square estimate can be used to estimate
the pooled regression model.

Correlation Analysis
In examining the association among the variables, we
employed the Pearson correlation coefficient
(correlation matrix) and the results are presented in
table 2
Table 2: Correlation Analysis Matrix
FMGRTH LEV ETR
FMGRTH 1.00 0.21 0.47
LEV 0.21 1.00 0.12
ETR 0.05 0.12 1.00
Source: researcher’s computation (2018)
The use of correlation matrix in most regression
analysis is to check for multi-co linearity and to
explore the association between each explanatory
variable (LEV and ETR) and the dependent variable
(FMGRTH) proxy as Profit after tax (PAT). Table 2
focused on the correlation between Firm Growth
measured as FMGRTH and the independent variables
(LEV and ETR).
Finding from the correlation matrix table shows that
all our independent variable, (LEV=0.05) were
observed to be positively and weakly associated with
Firm Growth. In checking for multi-colinearity, we
notice that no teo explanatory variables were perfectly
correlated. This means that there is no problem of
multi-colinearity between the explanatory variables.
Multi-colinearity may result to wrong signs or
implausible magnitudes in the estimated model
coefficients, and the bias of the standard errors of the
coefficients.
Testing of Hypotheses formulated
In other to examine the impact relationships between
the dependent variable FMGRTH and the independent
variables (LEV and ETR) and to also test our
formulated hypotheses, we used a pooled multiple
regression analysis since the data had both time series
(2007-2016) and cross sectional properties (8 quoted
companies). The pooled interaction based multiple
regression results are presented and discussed in
Table 3 below.
Table 3: FMGRTH Pooled Regression Results
Variables t-statistics Prob
C -0.372199 0.71
LEV 0.997048 0.33
ETR 0.343832 0.73
R-squared 0.63
Adjusted R-squared 0.59 Akika Info Criterion 33.72
F-Statistics 14.75521 Schwarz Criterion 33.93
Prob (F-Statistics) 0.00 Durbin-Watson stat 1.86
Source: Researcher’s computation through E-view
9.0 statistical package
In Table 3, R-squared and adjusted Squared values
were (0.63) and (0.59) respectively. The indicates that
all the independent variables jointly explain about
63% of the systematic variations in Firm Growth
(FMGRTH) of our samples companies over the eight
years periods (2007-2016). The F-statistics (14.76)
and its P-value (0.00) show that the FMGRTH
regression model is well specified.
Test of Autocorrelation: using Durbin-Waston (DW)
statistics which we obtained from our regression
result in table 4.3, it is observed that DW statistics is
1.86 and an Akika Info Criterion and Schwarz
Criterion which are 33.72 and 33.93 respectively also
further confirms that our model is well specified. In
addition to the above, the specific findings from each
explanatory variable are provided as follows:
Leverage Tax Aggressiveness (LEV), based on the t-
value of 0.997048 and p-value of 0.33, was found to
have a positive influence on our sampled quoted
companies Firm Growth and this influence is not
statistically significant as its p-value is more than 0.10
value. This result, therefore suggests that we should
accept our null hypothesis one (Ho1) which states that
the leverage tax aggressiveness strategies has no
significant effect on firm growth in Nigeria. This
means that on the basis of effective use of leverage to
generate firm growth, firms with high leverage value
performs better as the analysis reveals that for every
#1 increase in leverage value of firms in Nigeria, will
lead to about #1.00 decrease on Firm growth rate.
However, this result is not statistically significant and
therefore should not be used for any policy
consideration.

Effective tax rate aggressiveness (ETR), based on
the t-value of 0.343832 and p-value of 0.73 was found
to have a positive influence on our sampled quoted
company’s firm growth and this influence was not
statistically significant since its p-value was more
than 10%. This result therefore suggests that we
should reject our null hypothesis two (Ho2) which
states that effective tax rate aggressiveness strategies
have no significant effect on firm growth in Nigeria.
This means that effective tax rate impact positively on
firm growth. However, this influence is not
statistically significant and so, should be ignored as a
determinant of firm growth in Nigeria. Therefore on
the basis of efficient use of tax rate to generate
growth, those firms with high effective tax rate
perform better.
Discussion of Findings
Leverage tax aggressiveness (LEV) based on
findings, was found to impact positively on our
dependent variable, Firm Growth. This impact was
not statistically significant. This finding therefore
supports our aprori expectation and the findings of
Clive, Petro and Jeffres (2013) and negates the view
of Akanksha and Costanza (2016).
Effective tax rate (ETR) based on findings, was
found to impact positive on our dependent variable,
Firm Growth, but this impact was statistically
significant. This finding therefore supports the finding
of Clive, Petro and Jeffres (2013) and negates our
aprori expectation and the view of Antonio and
Giliord (2014).
Conclusion and Recommendation
In order to maximize the value of the firm,
shareholders would like to minimize corporate tax
payments net of the private costs of doing so; in other
words they want the company to be optimally
aggressive. There has been little rigorous empirical
analysis of the benefits and costs to corporations of
being tax aggressive. In this study, we attempt to fill
this void, at least in part, by investigating the market
reaction to an initial press mention that a firm was
involved in a corporate tax shelter. The study found
that leverage (LEV) impact positively on Firm
Growth. This impact was not statistically significant.
However, the study found that Effective tax rate
(ETR) impact positive on Firm Growth, but this
impact was statistically significant.
This means that on the basis of effective use of
leverage and market value to generate firm growth,
firms with high leverage value performs better as the
analysis reveals that for every #1 increase in leverage
value of firms in Nigeria, will lead to about #1.00 and
#0.32 decrease respectively on Firm growth rate.
Meanwhile, with different IFRS implementation and
convergence process between one country to another
lead to different response of taxation issue. Based on
the findings of the study, the researcher recommends
that since the influence of effective tax rate is not
statistically significant and so, should be ignored as a
determinant of firm growth in Nigeria. Therefore on
the basis of efficient use of tax rate to generate growth
should be encouraged.
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