BOOK TAX DIFFERENCES AND FINANCIAL DISTRESS OF PUBLIC LISTED CONSUMER GOODS FIRMS IN NIGERIA
Keywords:
Altman’s Z-Score, Book Tax Differences, Discretionary Total Book Tax Differences, Financial Distress, Permanent Book Tax Differences, Temporary Book Tax Differences, Total Book Tax DifferencesAbstract
Firms whose financial conditions are not stable enough often embark on aggressive techniques to enable them reduce their tax expense. This process starts with manipulating the earnings of the company in such a way that the lowest amount of tax can be paid while making the financial stance of the firm look stable. The study ascertains the effect of Book Tax Differences (BTDs) on the financial distress of public listed consumer goods firms in Nigeria. Specifically, the study intends to determine the effect of temporary Book Tax Differences, permanent Book Tax Differences, total Book Tax Differences and discretionary total Book Tax Differences on the Altman’s Z-Score of listed consumer goods firms in Nigeria was assessed at 1% significance level. Ex-post facto research design was deployed purposively in selecting the sample size of sixteen (16) consumer goods firms from a population of twenty-one (21). The study employed secondary data that were extracted from the audited financial statements and annual reports of the selected firms for a 10-year period, spanning from 2012 to 2021 financial years. Feasible Generalized Least Squares estimator was applied in the hypothesis testing. The results obtained that temporary Book Tax Differences have a significant and positive effect on the Altman’s Z-Score of listed consumer goods firms in Nigeria (P>|z| = 0.000); permanent Book Tax Differences have a significant and positive effect on the Altman’s Z-Score of listed consumer goods firms in Nigeria (P>|z| = 0.000); total Book Tax Differences have a positive but non-significant effect on the Altman’s Z-Score of listed consumer goods firms in Nigeria (P>|z| = 0.184); discretionary Book Tax Differences have no significant effect on the Altman’s Z-Score of listed consumer goods firms in Nigeria (P>|z| = 0.373). It was concluded that increase in temporary Book Tax Difference and permanent Book Tax Difference make the financial conditions of the firms look better while changes in total Book Tax Differences and those in discretionary Book Tax Differences do not alter the financial conditions of the firms. The study recommended that managers of consumer goods firms should engage in tax planning that increases their permanent book tax difference using legal means that yield tax savings in order to enhance the firms’ financial conditions.
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