Tax Avoidance and Earnings Management of Listed Consumer Goods Firms in Nigeria

Abstract

This study examined the relationship between tax avoidance and earnings management among listed consumer goods firms in Nigeria. Five tax-avoidance proxies were employed: effective tax rate (ETR), cash effective tax rate (CETR), book-tax difference (BTD), debt tax shield (DTS), and non-debt tax shield (NDTS); earnings management was proxied by scaled discretionary accruals derived as the difference between profit after tax and net operating cash flow, divided by total assets. The study adopted an ex-post facto research design, drawing audited annual report data from 12 listed consumer goods firms for 2016–2025, yielding a balanced panel of 120 firm-year observations. The study drew on Agency Theory, Positive Accounting Theory, and Signalling Theory. We used panel least squares regression, supported by Spearman rank correlation, variance inflation factors, and Breusch-Pagan-Godfrey heteroscedasticity diagnostics, in EViews 10.0. Results show that ETR had a negative and insignificant relationship with discretionary accruals (β = −0.0031; p = 0.4226); CETR had a positive and insignificant relationship (β = 0.0044; p = 0.8479); BTD had a positive and insignificant relationship (β = 0.7177; p = 0.0880); DTS had a negative and insignificant relationship (β = −0.0122; p = 0.3431); and NDTS had a negative and statistically significant relationship with discretionary accruals (β = −1.5793; p = 0.0484). Only the non-debt tax shield independently constrains discretionary accruals at the 5% significance level. The study recommends stronger disclosure of tax reconciliations and depreciation policies, closer review of book-tax differences by regulators and auditors, and a multi-indicator approach to tax-risk assessment by the Federal Inland Revenue Service