Deferred Taxation: It’s Influence on Corporate Financial Position and Earnings Management

Abstract

The study examined the influence of deferred taxation on corporate financial position and earnings management in industrial goods companies in Nigeria. Specifically, it assessed the effect of deferred tax obligations on net profit margin and earnings before interest and tax (EBIT), while considering the moderating role of current tax obligations. An ex-post facto research design was adopted, and secondary data were collected from the audited financial statements of 13 industrial goods companies listed on the Nigerian Exchange Group (NGX) from 2019 to 2023. Panel regression analysis was employed to determine the relationships among the variables. The findings revealed that deferred tax obligations had a significant negative effect on net profit margin (β = - 4.11E-07, p = 0.0395), indicating that higher deferred tax liabilities reduced profitability. Conversely, deferred tax had a significant positive effect on EBIT (β = 0.788248, p = 0.0353), suggesting that tax deferral strategies temporarily improved operational earnings. However, current tax obligations did not significantly moderate the influence of deferred tax on financial performance (p > 0.05), implying that immediate tax payments did not alter the effects of deferred tax strategies. From a practical perspective, the study recommended that regulatory bodies such as the Federal Inland Revenue Service (FIRS) strengthen tax compliance measures to prevent earnings manipulation through deferred taxation. Additionally, firms were encoura