Tax Planning: The Mediating Effect of Profitability, Return on Assets and Firm Value
Keywords:
Tax Planning, Firms’ value, Effective tax rate, Tax saving, profitability
Abstract
This study investigated the role profitability, Return on Assets and Firm Value plays in the preparation of tax for businesses. The study utilized a causal research approach to investigate the cause-and-effect relationship between tax planning and the value of businesses. This study specifically aims to evaluate the effect of profitability on the firms' value and the relationship between Return on Assets and its influence on firm value. The research population consisted of 64 out of 76 listed non-financial firms on the Nigeria Stock Exchange and within the period of 2011 to 2020. Using STATA 13 to analyze data retrieved from the annual financial statements of chosen firms, we recommend that, management should examine their tax savings activities in order to enable them maintain a stable performance; and also to improve the value of the firms’ income flow from extra income generation from the reduction of expenses.
References
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11. Feren Frisca Tania & Mukhlasin, (2020). "The Effect of Corporate Governance on Tax Avoidance: Evidence from Indonesia," Management & Economics Research Journal, Faculty of Economics, Commercial and Management Sciences, Ziane Achour University of Djelfa, 2(4), pages 66-85
12. Ftouhi, K., Ayed, A., & Zemzem, A. (2014). Tax planning and firm value: Evidence from European Companies, International Journal Economics and Strategic Management of Business. 2nd Edition International Conference on Business, Economics, Marketing and Management Research BEMM, 73-78.
13. Fu, L. Rajeev, S, & Parkash, M. (2016).Tobin’s Q ratio and firm’s performance. International Research journal of applied Finance, 7 (4), 14-25.
14. Gebhart, M.S. (2017). Measuring corporate tax avoidance: An analysis of different measures.Journal of Management Sciences, 3, 43-60.
15. Hanlon, M., & Heitzman, S., (2010). A review of tax research. Journal of Accounting and Economics 50, 127–178.
16. Izevbekhai, M.O. & Odion, A.O. (2021).Tax planning and firm value. Nigerian academy of management journal, 13(1), 94-119
17. Johannesen, N. (2014). Tax avoidance with cross-border hybrid instruments. Journal of Public Economics 112, 40–52
18. Kim J, Li Y, Zhang L (2011) Corporate tax avoidance and stock price crash risk: firm-level analysis. J Fin Econ 100:639–662
19. Lakhotia, R.N., & lakhotia, S. (1998). Corporate tax Planning. New Delhi: Vision Books.
20. Martins, M. A. (2022). The interplay of corporate tax planning and corporate governance on firm value: Evidence from listed NGX consumer goods firms. Investment Management and Financial Innovations, 19(2), 130-142. doi:10.21511/imfi.19(2).2022.11
21. Minnick, S., & Noga, T. (2010). Do corporate governance characteristics influence tax management? Journal of Corporate Finance, 16, 703-718.
22. Mintz, S.L. (1990). A taxing challenges forget death. CEO magazines. Available from: http://www.cfo.comrticle.fin 298’630.
23. Niepelt, D. (2005). ‘Timing Tax Evasion’, Journal of Public Economics, 89, 1611–37.
24. Olfa, N., Ines, K., & Oumaima, M. (2020). "Tax evasion, firm’s value and governance: evidence from Tunisian Stock Exchange", Journal of Financial Crime, 27(3). 781-799(19) DOI: https://doi.org/10.1108/JFC-02-2020-0023
25. Payne, D. & Raiborn, C. (2018). Aggressive tax avoidance: a conundrum for stakeholders, Governments, and morality. Journal of business Ethics, 147(4)469-487.
26. Rajhans, R., & Kaur, K. (2013).Financial determinants of firm’s value.Value evidence from Indian firms. Zenith International Journal of Business Economics & Management Research, 3(5), 70-76.
27. Roni, M., Richard, H., William, C., & Shlomo, B. (2021).The nominal share price puzzle. Journal of Economic Perspectives 23(2): 121-142 DOI: 10.1257/jep.23.2.121
28. Salihu , I.B., Annuar, H.A., & Obid, S.N.S. (2015). Foreign investors’ interests and corporate tax avoidance: Evidence from an emerging economy. Journal of Contemporary Accounting & Economics, 11, 138-147.
29. Sinebe, M. T. (2021). Tax Evasion And Avoidance And Economic Development: Evidence From Nigeria. AFAR Multidisciplinary Journal of management Sciences (MJMS) 3 (1) 172-185
30. Taylor, G. & Richardson, G. (2012). International Corporate Tax Avoidance Practices: Evidence from Australian Firms. The international journal of accounting The International Journal of Accounting 47, 469–496
31. Umeh, V. C., Okegbe, T. O. & Ezejiofor, R. A. (2020). Effect of Tax Planning on Firm Value of Quoted Consumer Goods Manufacturing Firms in Nigeria. International Journal of Finance and Banking Research 6(1) 1-10. Doi: 10.11648/j.ijfbr.20200601.11
2. Ayers, B., Laplante, S., & Schwab, C. (2011). Taxation and corporate governance: An Economic Approach, University of Georgia working paper.
3. Ayers, B., Jiang, X., & Laplante, S. (2009). Taxable income as a performance measure: the effects of tax planning and earnings quality. Contemporary Account Research 26 (1)15–54
4. Bhabra, G.S. (2020). Insider ownership and firm value in New Zealand. Journal of Multinational Financial Management. 17 (2), 142-154.
5. Dechow, P., Hutton, A., & Sloan, A. (1998). An empirical assessment of the residual income valuation model.Journal of International Accounting. Auditing and Taxation, 12(1), 45-62
6. Desai, M.A., & Dharmapala, D. (2009). Corporate tax avoidance and firm value.The Review of Economics and Statistics, 9 (3), 537-546.
7. Dyreng, S.D., Hanlon, M., & Maydew, E.L. (2010).The effects of executives on corporate tax avoidance.The Accounting Review, 85 (4), 1163-1189.
8. Dzhumashev, R. & Gahramanov, E. (2009). A Note on ‘A Dynamic Portfolio Choice Model of Tax Evasion: Comparative Statics of Tax Rates and its Implication for Economic Growth’, Working Paper, Deakin University.
9. Fagbemi , O., Olaniyi, O. & Ogundipe, A. (2019) "The corporate tax planning and financial performance of systemically important banks in Nigeria", Ekonomski horizonti, 21(1), 15 - 28
10. Feltham, G., & Ohlson, J. (1995).Valuation and Clean Surplus Accounting for operating and financial activities, The Accounting Review, 74(2), 689-731.
11. Feren Frisca Tania & Mukhlasin, (2020). "The Effect of Corporate Governance on Tax Avoidance: Evidence from Indonesia," Management & Economics Research Journal, Faculty of Economics, Commercial and Management Sciences, Ziane Achour University of Djelfa, 2(4), pages 66-85
12. Ftouhi, K., Ayed, A., & Zemzem, A. (2014). Tax planning and firm value: Evidence from European Companies, International Journal Economics and Strategic Management of Business. 2nd Edition International Conference on Business, Economics, Marketing and Management Research BEMM, 73-78.
13. Fu, L. Rajeev, S, & Parkash, M. (2016).Tobin’s Q ratio and firm’s performance. International Research journal of applied Finance, 7 (4), 14-25.
14. Gebhart, M.S. (2017). Measuring corporate tax avoidance: An analysis of different measures.Journal of Management Sciences, 3, 43-60.
15. Hanlon, M., & Heitzman, S., (2010). A review of tax research. Journal of Accounting and Economics 50, 127–178.
16. Izevbekhai, M.O. & Odion, A.O. (2021).Tax planning and firm value. Nigerian academy of management journal, 13(1), 94-119
17. Johannesen, N. (2014). Tax avoidance with cross-border hybrid instruments. Journal of Public Economics 112, 40–52
18. Kim J, Li Y, Zhang L (2011) Corporate tax avoidance and stock price crash risk: firm-level analysis. J Fin Econ 100:639–662
19. Lakhotia, R.N., & lakhotia, S. (1998). Corporate tax Planning. New Delhi: Vision Books.
20. Martins, M. A. (2022). The interplay of corporate tax planning and corporate governance on firm value: Evidence from listed NGX consumer goods firms. Investment Management and Financial Innovations, 19(2), 130-142. doi:10.21511/imfi.19(2).2022.11
21. Minnick, S., & Noga, T. (2010). Do corporate governance characteristics influence tax management? Journal of Corporate Finance, 16, 703-718.
22. Mintz, S.L. (1990). A taxing challenges forget death. CEO magazines. Available from: http://www.cfo.comrticle.fin 298’630.
23. Niepelt, D. (2005). ‘Timing Tax Evasion’, Journal of Public Economics, 89, 1611–37.
24. Olfa, N., Ines, K., & Oumaima, M. (2020). "Tax evasion, firm’s value and governance: evidence from Tunisian Stock Exchange", Journal of Financial Crime, 27(3). 781-799(19) DOI: https://doi.org/10.1108/JFC-02-2020-0023
25. Payne, D. & Raiborn, C. (2018). Aggressive tax avoidance: a conundrum for stakeholders, Governments, and morality. Journal of business Ethics, 147(4)469-487.
26. Rajhans, R., & Kaur, K. (2013).Financial determinants of firm’s value.Value evidence from Indian firms. Zenith International Journal of Business Economics & Management Research, 3(5), 70-76.
27. Roni, M., Richard, H., William, C., & Shlomo, B. (2021).The nominal share price puzzle. Journal of Economic Perspectives 23(2): 121-142 DOI: 10.1257/jep.23.2.121
28. Salihu , I.B., Annuar, H.A., & Obid, S.N.S. (2015). Foreign investors’ interests and corporate tax avoidance: Evidence from an emerging economy. Journal of Contemporary Accounting & Economics, 11, 138-147.
29. Sinebe, M. T. (2021). Tax Evasion And Avoidance And Economic Development: Evidence From Nigeria. AFAR Multidisciplinary Journal of management Sciences (MJMS) 3 (1) 172-185
30. Taylor, G. & Richardson, G. (2012). International Corporate Tax Avoidance Practices: Evidence from Australian Firms. The international journal of accounting The International Journal of Accounting 47, 469–496
31. Umeh, V. C., Okegbe, T. O. & Ezejiofor, R. A. (2020). Effect of Tax Planning on Firm Value of Quoted Consumer Goods Manufacturing Firms in Nigeria. International Journal of Finance and Banking Research 6(1) 1-10. Doi: 10.11648/j.ijfbr.20200601.11
Published
2023-06-23
How to Cite
Tonbraladoh, S. M., & AKPOMIEMIE, Alex Omuerore. (2023). Tax Planning: The Mediating Effect of Profitability, Return on Assets and Firm Value. International Journal on Economics, Finance and Sustainable Development, 5(6), 232-243. https://doi.org/10.31149/ijefsd.v5i6.4528
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