Tax Planning and Firm Value: Empirical Evidence from Nigerian Consumer Goods Industrial Sector

Abstract

Taxes on corporate profits are mandatory and usually constitute a large outflow for firms that, if not planned, lead to disproportionate and unwilling transfer of corporate resources to the government with its negative impact on the operating capacity and firm value. In the light of this, the study examined the effect of tax planning on firm value. Ex-post facto research design was adopted. The study covered 50 firm-year observations for the period, 2010-2014. Data were drawn from the published financial statements of the sampled companies and analyzed using descriptive and inferential statistics centred on specified panel regression model. The joint effect of the considered tax planning proxies on the firm value was significant (F-stat. =2.580; P-value = 0.032). While Effective tax rate (ETR), Dividend (DIV) and Firm age (FAG) are positively and significantly related to firm value, firm size, leverage and tangibility exert negative effect on firm value. The Adj. R² value of 20.6% was not sufficiently strong in explaining the variation in firm value. The study concluded that wholistic approach to tax planning and optimal mix of tax planning strategies are important determinants of their effect on firm value.

Keywords: Firm value, Tax planning, Political cost theory, Tangibility, leverage.