TAX PLANNING AND FINANCIAL PERFORMANCE: A COMPARATIVE ANALYSIS OF LISTED MANUFACTURING FIRMS AND DEPOSIT MONEY BANKS IN NIGERIA
Keywords:
Asset Turnover Ratio, Book-Tax Difference, Cash Effective Tax Rate, Effective Tax Rate, Return On Investment, Tax PlanningAbstract
This study comparatively analyzed the effect of tax planning on the financial performance of listed manufacturing firms and deposit money banks in Nigeria. The specific objectives determined the effect of effective tax rate, book-tax difference and cash effective tax rate on asset turnover ratio and return on investment among listed manufacturing firms and deposit money banks in Nigeria. It also determined if sectoral differences exist between listed manufacturing firms and deposit money banks in Nigeria. Thus, the study employed the ex-post facto research design. Using a population of twenty (20) listed manufacturing firms and thirteen (13) listed deposit money banks in Nigeria, the stratified sampling technique was adopted to select a sample size of twenty-four (twelve firms from each sector). Secondary data sourced from the audited financial statements and annual reports of the listed firms over 11 years period (2014 to 2024) were analysed and used to test the relevant hypotheses formulated using the Robust Least Squares method at a 5% level of significance, as facilitated by E-Views Version 11 statistical software. The combined sector findings revealed that: effective tax rate and cash effective tax rate positively and significantly affect return on investment of listed manufacturing firms in Nigeria. However, only book-tax difference has a significant but negative effect on asset turnover ratio of listed manufacturing firms and deposit money banks in Nigeria while effective tax rate and cash effective tax rate positively and significantly affect asset turnover ratio of listed manufacturing firms in Nigeria. Comparative analysis revealed that: effective tax rate had non-significant and negative effect on asset turnover ratio in manufacturing firms (β = -0.012344, p = 0.0864) and a non-significant and positive effect in banks (β = 0.003010, p = 0.7061); but had a significant and positive effect on return on investment in manufacturing firms (β = 0.019225, p = 0.0000) and in banks (β = 0.049980, p = 0.0000). The book-tax difference had a non-significant and positive effect on asset turnover ratio in manufacturing firms (β = 0.388356, p = 0.4862) and in banks (β = 0.286093, p = 0.0758) but a significant and positive effect on return on investment in manufacturing firms (β = 0.648056, p = 0.0000) and in banks (β = 1.446025, p = 0.0000). The cash effective tax rate had a non-significant and negative effect on asset turnover ratio in manufacturing firms (β = -0.013477, p = 0.4394) and a non-significant positive effect in banks (β = 0.014257, p = 0.2253) but had a significant and positive effect on return on investment in manufacturing firms (β = 0.017409, p = 0.0004) and in banks (β = 0.012742, p = 0.0000). IThe study concluded that tax planning helps both manufacturers and banks make more profit, but does not help as much with how efficiently they run their day-to-day operations. The study recommends that the Federal Inland Revenue Service (FIRS) should strengthen its oversight mechanisms to ensure that firms are not exploiting aggressive tax planning practices, while refining existing tax policies and incentive structures that encourage investment and growth, so that firms can legally benefit from tax allowances without compromising fiscal integrity.
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