Capital Structure and Effective Tax Rate in Listed Manufacturing Firms in Nigeria

Abstract

In this study the author aims to evaluate the effect of capital structure on effective tax rate of listed manufacturing firms in Nigeria. The scope of this study covers a 10-year period ranging from 2013 to 2022. The independent variables of interest which were employed in other to ascertain the possible effect include; leverage, long-term debt and short-term debt. Specifically, the author conducts pre regression analysis which includes descriptive statistics, correlation matrix, and normality of residua analysis. Basically, the pool Ordinary Least Square Regression analysis was first conducted, and diagnostic tests were carried out to check if it violates the basic Gauss Markov Theorem and assumptions. Particularly, the researcher finds that the outcome from the OLS estimator reveals that: leverage has a positive significant effect on effective tax rate of listed Manufacturing firms in Nigeria. long-term debt has a negative significant effect on effective tax rate of listed Manufacturing firms in Nigeria; and short-term debt has a negative significant effect on effective tax rate of listed Manufacturing firms in Nigeria. Results from the robust standard error estimator leads to the conclusion that leverage can increase effective tax rate while short-term and long-term debt reduces the effective tax rate of the firms under consideration. This study recommends that governments be stricter in overseeing firm tax policies and practices by exploiting the loopholes contained in the taxation rules, one of which is by applying capital structure practices.