TAX OPTIMIZATION AND FIRM VALUE: A STUDY OF SELECTED MANUFACTURING FIRMS LISTED IN NIGERIA

Abstract

he importance of tax strategy as an influential factor on profitability which moderates and determines the long-term value of a firm is of paramount importance. The purpose of this research is to see how tax planning affect the value of manufacturing firms listed in Nigeria between (2011-2020). The relationship between the dependent and independent variables was determined using the expo facto design method and the multiple regression technique. Also, the Pearson Correlation analysis was used in the paper. Data for the study were extracted from the audited financial statements of the sampled companies for a 10-year period (2011-2020). The dependent variable (market value) was proxy by Tobin Q, while the independent variables were proxy by Effective tax rate (ETR), thin capitalisation and Capital intensity. The regression result shows an overall Adjusted R2 of 0.412 which signifies that the explanatory variables are able to explain variation in market value to the extent of 41.2% while the balance of 58% is attributable to factors outside the model. Market value proxy by Tobin Q was negatively and insignificantly affected by ETR (Beta=-0.75,P=0.364) while thin capitalization and capital intensity significantly affected market value . The study found that market value is affected by Investment in Tangible asset by consumer goods firm in Nigeria and recommends amongst others that financial and tax advisors should enlighten management on the quantum of asset to use and also regulate their leverage as much as possible within the threshold that reduces their weighted average cost of capital, making the overall cost benefit from debt to outweigh the cost.