1. Background of the study
Effective tax rate (ETR) is an important measure that is used to capture tax burden by corporate entities. Effective tax rate (ETR) is compared with statutory tax rate (STR) to gauge the weight of tax liability so as to know the tax burden of an entity (Hassan, et al., 2020). It is calculated as the tax paid in year t divided by profit before tax (PBT) in year t-1, as the company income in Nigeria is on the preceding year basis. Literature in taxation indicate that tax represent the cost of doing business therefore, any action that reduces the said cost is desirable in order to improve after tax profit which will also improve its value. To achieve that, companies engage in tax planning activities with aims to minimise their tax liabilities. Several factors are said to influence the level of tax planning among them include firm attributes such as leverage, firm size and firm age.
Leverage is the source of finance involving the use of debt rather than fresh equity in the purchase of an asset with the expectation that the after tax profit to equity holders from the transaction will exceed the borrowing cost frequently by several multiples (Brigham and Eugene 2018). Therefore, finance cost can reduce the profit before tax which translate to lower tax liabilities i.e. lower ETR for the company.
According to Ana et al. (2020), the size of a firm is the amount and variety of production capacity and ability a firm possesses or the amount and variety of services a firm can provide concurrently to its customers. There are different measures of firm size such as number of employees, log of revenue, log of total asset and value added. Larger firms have sufficient resources and better opportunities to undertake tax planning strategies by utilising tax incentives provided to them, an effective tax planning strategy will reduce the firm ETR, to the extent that it falls below the statutory tax rate (Amato and Burson 2019). It is argued by (Aloys et al., 2020) that firm size is a basis of competitive advantage as larger companies tend to be more efficient and have better resources to survive economic downturns.
Firm age represents the difference between year of listing and year of observation, how old the company is or the number of years of incorporation of a company. The institutional knowledge in tax planning is a function of age and accompanying experience of managers in tax matters in an organisation.
1.2 Statement of the Problem
There is a general perception that tax is an important source of fund for development of the economy and provision of social amenities and services in the nation. However, problems arise in the area of negative relationship between taxes and the business’ ability to sustain itself and to expand (Richardson et al., 2019).
A number of studies have been carried on the relationship between firm attributes, effective tax rate and other related issues. The problem which has been recognized and addressed by this study is that there is inadequate research on the impact of firm attributes on effective tax rates in the Nigerian oil and gas sector. This inadequacy in research makes it difficult to understand the factors that influence the effective tax rate in the sector considering its peculiarities, and to identify ways to improve tax compliance and collection.
This is a significant issue because the oil and gas sector is a major contributor to the Nigerian economy, and its effective tax rate has a direct impact on government revenue. Lack of consistency in the application of tax laws and regulations by the Nigerian government, lack of transparency and disclosure of effective tax rates by oil and gas companies in Nigeria and lack of understanding of the relationship between firm attributes and effective tax rate, are also some of the issues which have birthed this work. The researchers embarked on this research to adequately address these problems.
1.3 The Research Objectives
The main objective of this study is to examine the relationship or impact of firm attributes on effective tax rate of listed oil and gas companies in Nigeria. The study is guided by the following specific objectives:
- To examine the impact of firm size on effective tax rate in oil and gas companies in Nigeria.
- To determine the influence of leverage on effective tax rate in oil and gas companies in Nigeria.
- To examine the impact of firm age on effective tax rate in oil and gas companies in Nigeria.
1.4 Research Questions
The following research questions are answered in this study:
- What is the impact of firm size on Effective Tax Rate in oil and gas companies in Nigeria?
- What is the influence of leverage on Effective Tax Rate in oil and gas companies in Nigeria?
- What is the effect of firm age on Effective Tax Rate in oil and gas companies in Nigeria?
1.5 Research Hypothesis
H01: Firm size has no significant impact on Effective Tax Rate in oil and gas companies in Nigeria.
H02: Leverage has no significant influence on Effective Tax Rate in oil and gas companies in Nigeria.
H03: Firm age has no significant impact on Effective Tax Rate in oil and gas companies in Nigeria.
1.6 Significance of the Study
This study contributes to the previous literature by simultaneously observing the impact of firms’ attributes on Effective Tax Rate. There are several studies on Firm Attributes and Effective Tax Rate in Nigeria. The outcome of this study will therefore serve as a reference for further research in this area.
This study will prove useful to management and employees of these oil and gas companies, as they would be able to take advantage of their financial leverage in tax planning, reducing their tax liabilities.
For policy, the findings of this study provides better understanding of regulators and corporate managers on the firm attributes that play significant role in the tax burden of the oil and gas sector. This is relevant as policy efforts could be geared towards achieving the desired level of the variables studied in order to enhance the effective tax rate of the sector.
1.7 Scope of the Study
The study examine the impact of firm attribute on effective tax rate of Nigerian listed oil and gas industry on the floor of Nigerian Exchange Group. The study will cover a period of 10 years from 2012 – 2022.
2.0 Literature Review
This section contains information gathered through consulting different scholars’ work on: “Firm Attributes and Effective Tax Rate”. This section consists of various sections. Section 2.1 This section presents the conceptual review under section 2.1.2, which contains the concept of effective tax rates and firm attributes, the empirical studies done by other scholars relevant to the topic under study in section 2.2, the theories underpinning the study, captured in section 2.3, and the gap in the literature in section 2.4.
2.1 Conceptual Review
2.1.2 Concept of Firm Attributes
Firms can be differentiated from each other based on certain characteristics they possess. Such characteristics are referred to as “firm attribute” – which exist at the firm’s level and have the potential to influence the decisions of the managers in the firm. Firm’s attributes can be determined based on the relevant information disclosed on its financial statements for a particular accounting period. Bulent and Christopher (2019), describe firm attributes as essential determinants of a firm’s performance as well as its success in business.
2.1.3 Firm Size
Firm size is one of the most influential characteristics in organizational studies (Pandey, et al., 2019). Large firms are different from smaller firms, in that larger firms are likely to have more layers of management, greater number of departments, increased specialization of skill and greater bureaucracy than smaller firms (Yegon, 2018).
Firm size matters for a number of reasons. Larger firms are associated with lower fixed costs per unit, cheaper access to outside financing, diversification of their financing sources and less likely to fail or liquidate (Gaddard et al 2019).
2.1.4 Leverage
Leverage is the degree to which a company uses fixed income security such as debt and preferred equity to finance its business activities (Yegon, 2019). High degree of financial leverage is usually followed by high interest payment. Banks that are highly levered may be at risk of bankruptcy if they are unable to pay their debt as at when due. Leverage has its positive side, in that it can increase shareholders wealth if the management make good use of the tax advantage associated with borrowings fund. Debt financing creates leverage because the charges on loans are tax deductible and this is expected to free up some cash for other investment purposes (Yegon, 2019).
2.1.5 Firm Age
The age of a firm is considered a factor that improves firm’s performance. Contrary to this view, Muhammad and Shahimi (2018), Claudio and Urs (2019), believe that older firms are not flexible enough to make rapid adjustment, reduce barriers to innovation and make profit, owing to the fact that their organizational rigidities limit their growth by inhibiting change as they become harder to change over time. However, the findings of Alex et al. (2017), counter this assertion with their view that firms improve with age that is, ageing firms experience rising level of productivity since they are able to understand their strength over time.
2.1.6 Concept of Effective Tax Rate (ETR)
The Effective Tax Rate (ETR) is the rate that measures the tax burden of an item. It is defined as the ratio of tax income to pre-tax income. It provides a basic summary statistic of tax performance which describes the amount of taxes paid by a company relative to its gross profit (Harris and Feeny, 2018). Li and Wang (2010) defined ETR as the ratio between the actual payable tax amount of the current period and the total revenue. In broad terms, ETR is actually a measure of the company’s tax burden because it expresses the rate of tax paid on the company income. ETR becomes a concern in these debates because it summarizes the cumulative effects of various tax incentives. Therefore corporate ETR varies across companies and over time, thus, it has been used as a tool to identify the level of neutrality of the tax system and the characteristics of companies with higher and lower tax burdens.
2.1.7 Firm Size and Effective Tax Rate
Firms’ size is one of the characteristics expected to influence ETRs. However, the direction of the relationship between firms’ size and ETRs can be ambiguous. Zimmerman (2019) documents that larger firms are associated with higher effective tax rates. Effective tax rates are also a proxy for firms’ success; therefore, if larger firms are more successful than smaller firms, those will be exposed to more political scrutiny. As larger firms are subject to higher scrutiny from tax authorities, they have reluctance to reduce effective tax rates.
Consequently, larger firms are expected to have a higher taxation burden when compared with firms which have a smaller dimension since taxes paid represent political costs which shall be borne by firms.
2.1.8 Firm Age and Effective Tax Rate
Firm age is measured as the number of years from the year of listing on the floor of the Nigeria Stock Exchange (NSE) to date.
2.1.9 Leverage and Effective Tax Rate
Leverage is one of the firm characteristics variables that can easily be used to discipline managers to reduce the tendency for rent seeking. This is because managers of companies with higher amount of leverage are subject to the discipline of financing agreements imposed by creditors through the inclusion of limiting clauses (Ribeiro, 2018). To achieve a certain level of debt, management manipulates financial statements; and as a result, the high level of debt creates the interest tax advantage for these companies (Hashemi and Mehrabi, 2020). A firm in terms of financing decision may choose to finance its operation with debt or equity. If a firm chooses to finance its operation with equity, the implication is that it would pay dividends to investors, which is tax deductible for tax purposes. Tax paid on dividend is referred to as withholding tax.
Debt financing is often preferred by firms because of the non – deductibility of interest expenses (tax shield) unlike the case of equity financing. The non – deductible tax expense is a way of engaging in aggressive tax behaviour to influence earnings and enhance shareholders’ wealth. Ribeiro (2018) posited that more leveraged firm exhibit lower effective tax rates (tax aggressiveness).
2.2 Theoretical Framework
This study uses Hoffman tax planning theory and agency cost theory to explain the concept of Firm Attributes and Effective Tax Rates of Listed Oil and Gas Companies in Nigeria.
2.2.1 Hoffman tax planning theory
According to Hoffmann (2017), taxation, mostly are based on business or accounting concepts, thus a firm can modify such activities towards the attainment of reduction in tax liability. The theory is premised on the fact that firms’ tax liability is based on taxable income rather than accounting income. The idea is thus to intensify activities that reduce taxable income but has no indirect relationship on accounting profit. The theory thus recognised a positive association between firm tax planning activity and firm performance. According to Hoffman (2020), tax planning seeks to divert cash, which would ordinarily flow to tax authorities, to the corporate entities. Tax planning activities are desirable to the extent that they reduce taxable income to the barest minimum, without sacrificing accounting income. As capital markets develop and the separation of ownership and control of corporate bodies become well-spread, the need for a comprehensive tax planning theory is imperative.
2.2.2 Agency theory
Dharmapala (2018) and Desai, Dyck and Zingales (2017) consider the interaction of tax planning activities and the agency problems inherent in public companies. The theory argues that the obfuscator tax planning activities can create a shield for managerial opportunism and the diversion of rents. They posit that straightforward diversion and subtle forms of earnings manipulation can be facilitated when managers undertake tax avoidance activity. It is their view that tax planning has the direct effect of increasing corporate profitability and firm value only for firms with strong governance institutions. Where there are weak governance institutions, increased opportunities for managerial rent diversion dominate these effects.
The agency view of tax avoidance on the other hand emphasized on the inability of the tax savings through tax planning strategies to transform into enhancement of after tax return due to agency problem of managerial opportunism or resource diversion. Desai and Dharmapala (2019) opined that complex tax avoidance transactions can provide management with the tools, masks, and justifications for opportunistic managerial behaviours, such as earnings manipulations, related party transactions, and other resource-diverting activities thus, tax savings may not actually result to increase on firms’ after tax rate of return.
2.3 Empirical Review
Anouar and Houria (2017) conducted a study on: “The Determinants of Tax Avoidance within Corporate Groups: Evidence from Moroccan Groups”. This study examined the major tax avoidance determinants within the corporate groups, based on a hand-collected sample of 45 publicly-listed Moroccan corporate groups, over the 2011–2015 period. The literature review indicated that there were several practices of Moroccan corporate groups, used to reduce their tax liabilities, specially, we find, Group size, Intra-group transactions, Profitability, Intangible Assets, Debts, and Multinationality. Finally, our regression results show that only the multinationality, intra-group transactions and Debts are used to maximize tax avoidance opportunities, therefore to reduce the group’s tax liabilities. The study made use of the multiple regression models. The study indicates that highly indebted firms are likely to take advantage of the main characteristics of debt-capital in order to avoid a significant corporate tax burden. It added that tax considerations have made debt financing, the preferential form of financing in areas with high taxation
Richardson and Lanis (2017) conducted a study on: “Determinants of the variability in corporate effective tax rates and tax reform: Evidence from Australia’. This study examined the determinants of the variability in corporate effective tax rates in Australia spanning the Ralph Review of Business Taxation reform. The results indicate that corporate effective tax rates are associated with several major firm-specific characteristics, including firm size, capital structure (leverage) and asset mix (capital intensity, inventory intensity and RandD intensity). While the Ralph Review tax reform had a significant impact on many of these associations, corporate effective tax rates continue to be associated with firm size, capital structure and asset mix after the tax reform. The study showed a positive relationship between financial leverage and tax wedge.
Derashid and Zhang (2016) researched on: “Effective tax rates and the “industrial policy” hypothesis: evidence from Malaysia” and ascertained a negative relationship between leverage and effective tax rate. Studies on effective tax rates (ETR) and firm size in the non-U.S. context are next to non-existent, with the Kim and Limpaphayom study (1998) being the sole exception. Moreover, no detailed analysis has been performed to study the link between industrial sectors and ETR. Based on a hand-gathered sample of Malaysian firms trading in the Kuala Lumpur Stock Exchange in 1990–1999, this paper examined the association between ETR and a set of possible factors using a regression analysis. There is evidence to suggest that manufacturing firms and hotels paid significant lower effective tax in Malaysia between 1990–1999. In addition, it appeared that large Malaysian firms do not suffer a “political cost” as indicated by a negative and significant relation between firm size and ETR. Finally, more efficient Malaysian firms pay lower effective tax. The results are consistent with the “industrial policy” hypothesis developed in this paper based on an examination of the Malaysian context. These results from a large developing country (e.g., Malaysia) can be used to compare with existing results from a large developed country (e.g., U.S.).
Akanksha, et al, (2019) examined the Impact of Corporate Tax Aggressiveness and The Role of Debt in the U.S.A. The study sample consisted of 9,648 unique firms, over the period 2019-2022. The impact of leverage on tax aggressiveness was tested using the U.S model’s predictions. Findings showed that leverage deters tax aggressiveness. It was also evident that though leverage reduces tax aggressiveness in absolute value, it exacerbates it when the latter is measured as a proportion of the firm’s pre-tax book income. This is consistent with the hypothesis that leverage may actually cause the manager to avoid more taxes in the non-bankrupt states of the world, when the perceived benefits there from are positive. The use of debt to reduce tax expense is often regarded as debt tax aggressiveness and companies are always advised to be careful with it because of the attendant implications. Leverage and asset mix are positively related to both measure of ETR, while state control is positively related to cash ETR but not GAAP ETR and firm size is positively related to GAAP ETR but not to CASH ETR.
Kurawa and Hauwa (2018) researched on: “A Comparative Analysis Of The Impact Of Corporate Taxation On Company’s Reserve and Dividend Policy In Nigeria: 2000-2011”. This study critically examined the different selected sectors of the Nigerian Stock Market transaction profile to study the impact of corporate taxation on company’s reserves and dividends in Nigeria covering thirty five (35) companies drawn across seven (7) sectors for a period of 12 years (2000-2011). Ordinary Least Squares Estimation (OLSE), Coefficient of Variability (CV), Granger Causality and Autocorrelation Function/Partial Autocorrelation Function (ACF/PACF) were the different tests from E-view 4.1 and Microfit 4.0 models used to evaluate the sectoral data to determine the comparative impact. The empirical results from the OLS revealed varying degree of directional and magnitude response from ACTCPT. The findings from the Granger Causality effect showed that there was no causality effect. This implied that the implementation of corporate tax in Nigeria does not affect the payment policy among the various quoted companies under the stock exchange. Findings recommended implementation of ongoing restructuring policy on the sectors performance so as to increase the Aggregate Cumulative Total Cooperate Tax (ACTCPT), Aggregate Cumulative Total Earning Per Share (ACTEPS) and Aggregate Cumulative Total Return Earning Per Share (ACTRES) thereby improving the Aggregate Cumulative Total Dividend Payment Policy (ACTDPT) in Nigeria among the identified non performing sectors..
Claudio and Urs (2009, 2010) investigated Firm Age and Performance of Listed Firms in U.S. The work used panel data from 235 firms, from 2017 to 2020.The results showed the existence of a significant age effect on performance, there is a negative link between firm age and performance over the range of ages observed in the sample. Secondly, only very few firms in the sample actually live long enough to experience the possible turning point in the age performance. Implying that, newly listed firms perform more than older firms.
Gap in the Literature
From the literatures reviewed, the researcher observed an inadequacy of research on the impact of firm attributes on Effective Tax Rates in the Nigerian oil and gas sector, considering the peculiarities of the sector and its contribution in terms of taxation to the development of the nation. Studies which consider the sample of this study, being listed oil and gas companies in Nigeria, have proven to be scarce. Also, majority of the studies about firm attributes and ETRs are largely based on firms outside the country. This study therefore seeks to expand the frontiers of knowledge by appraising the effect of firm attributes and effective tax rates in the Nigerian oil and gas Sector.
3.0 Research Methodology
This section features the research design, population, sample size, method of data collection, techniques of data analysis, variables of the study and their measurement.
3.1 Research Design
The study adopted the ex-post facto research design as a result of the nature of the study, which assesses the impact of firm attributes on the Effective Tax Rate of oil and gas companies in Nigeria.
3.2 Population of the study
The population of the study consist of the listed oil and gas firms on the floor of the Nigerian Stock Exchange main board as at 31st December 2022.
3.3 Sample Size
A sample of five (5) listed oil and gas firms were selected from the oil and gas companies listed on the floor Nigeria Stock Exchange main board. The companies selected are Conoil Plc., Total Nigeria Plc., MRS Oil Nigeria Plc., Ardova Oil Plc. and Oando Oil Plc.
3.4 Sampling Techniques
The judgmental (purposive) technique, which is one of the non-probabilistic sampling methods, was used in deriving the sample size from the population of the study.
3.4 Data Sources and Method of Data Collection
Secondary data were sourced from audited financial reports, statements and other available corporate publications for a period of 10 years, from
3.5 Description and Measurement of Variables
| Variable Name | Variable Type | Proxy | Prior Expectation |
| Effective Tax Rate (ETR) | Dependent | ||
| Firm Size | Independent | Revenue | Positive (+ve) |
| Firm Age | Independent | Year of Observation – Year of Listing | Positive (+ve) |
| Leverage | Independent | Positive (+ve) |
3.7. Techniques of Data Analysis
This study intends to examine Firm Attributes and Effective Tax Rates of Listed Oil and Gas Companies in Nigeria. Consequently, statistical tools that will assist the researcher to measure the existence and degree of association among the variables of the study will be used. Thus, descriptive statistics and Pearson correlation were used.
3.8 Model Specification
Multiple Regression analysis, being an extension of simple regression analysis was used. This is because, in multiple regression analysis, more than one proxy of the independent variable is used to determine the dependent variable.
For the purpose of this study, STATA will be used in the analysis of the variables and also the following model is proposed to test the impact of firm attributes on ETR.
ETR = F (FS, FA, LEV)
ETR it=αt+ β1FSit+ β2FAit+β3 LEVit
Where,
ETR = Effective tax rate
i = firms
t = the financial years
βn = Beta coefficient
FS = Firm Size
LEV = Leverage
FA =Firm age
α = Constant term
3.9 Decision Rule
The decision rule for this study states that the null hypothesis will be accepted if the p – value is greater than 0.05, otherwise reject null hypothesis if the p – value is less than 0.05 at 3 degrees of freedom.
4.0 Data Presentation and Analysis
This chapter presents, analyse and interprets the data generated for the study. The data relating to each of the statistical hypotheses of the study was presented and analysed. The data for measuring both determinants of firm attribute and effective tax rate were collected from the annual reports and accounts of the sampled listed oil and gas companies in the Nigerian exchange group (NGX) to determine the effect of the independent variables on the dependent variable. The chapter starts with the preliminary analysis of the sample using descriptive statistics, correlation and then the regression results.
4.1 Descriptive Statistics
This subsection presents the descriptive statistics of the dependent and independent variables. Table 4.1 provides a summary of statistics for the variables of the study. The summary statistics include measures of central tendency, such as mean, measures of dispersion (the spread of the distribution) such as the standard deviation, minimum and maximum of both the dependent variable and explanatory variables. The table shows the summary statistics of the dependent and independent variables in order to effectively appreciate the nature of the results. The descriptive statistics analysis the basic feature of determinants of profitability. It provides a basic insight into the nature of the data upon which analysis is done.
| Table 4.1 Descriptive Statistics | |||||
| N | Min | Max | Mean | Std. Deviation | |
| Effective Tax Rate | 50 | 0 | 10 | .72 | 1.525 |
| Leverage | 50 | 0 | 6 | .20 | .881 |
| Firm Age | 50 | 33 | 95 | 60.64 | 17.784 |
| Firm Size | 50 | 6 | 9 | 7.68 | .621 |
| Valid N (listwise) | 50 | ||||
Source: Researchers’ Computation 2024
Table 4.1 shows that the mean of the effective tax rate (ETR) of the sampled oil and gas companies is 0.75. This is an indication that sampled oil and gas companies have an average tax rate of 75%. The minimum and maximum values of effective tax rate during the study period are 0 and 10 indicating a 0% tax rate and a 100% tax rate respectively. The standard deviation of effective tax rate is 1.525 suggesting moderate variability in effective tax rate.
The Table further revealed an average value of 0.20 for leverage. The value implies that 20% of the sampled companies’ financing comes from debt financing during the study period. The standard deviation of 0.881 indicate that most of the company’s leverage are not clustered around the mean. The minimum and maximum values are 0% and 6% respectively
Firm age as revealed by the table had a mean value of 60.64 years with a standard deviation of 17.784 which indicates that the firm age is clustered around the mean. The minimum and the maximum value stood at 33 and 95 suggesting that the youngest firm is 33 years and the oldest firm is 95 years.
Firm size as seen from table 4.1 has a mean of 7.68 which means that the average size of sample companies is 7.68. The minimum firm size of sampled companies stood at 6 and 9 as maximum.
- Correlation Matrix of the Study Variables
Table 4.2 presents correlation values between dependent and independent variables and the correlation among the independent variables themselves. These values are generated from Pearson Correlation output. The Table contains correlation matrix showing the Pearson correlation coefficients between the dependent and independent variables and among the independent variables of the study.
Correlations | ||||||||
| Effective Tax Rate | Leverage | Firm Age | Firm Size | |||||
| Effective Tax Rate | Pearson Correlation | 1 | -.016 | -.201 | -.050 | |||
| Sig. (2-tailed) | .913 | .162 | .731 | |||||
| N | 50 | 50 | 50 | 50 | ||||
| Leverage | Pearson Correlation | -.016 | 1 | -.162 | .119 | |||
| Sig. (2-tailed) | .913 | .261 | .409 | |||||
| N | 50 | 50 | 50 | 50 | ||||
| Firm Age | Pearson Correlation | -.201 | -.162 | 1 | .246 | |||
| Sig. (2-tailed) | .162 | .261 | .085 | |||||
| N | 50 | 50 | 50 | 50 | ||||
| Firm Size | Pearson Correlation | -.050 | .119 | .246 | 1 | |||
| Sig. (2-tailed) | .731 | .409 | .085 | |||||
| N | 50 | 50 | 50 | 50 | ||||
Source: Researchers’ Computation 2024
The correlation matrix as per table 4.2 shows the relationship between dependent variable and explanatory variables. Also it shows the relationship between all pairs of independent variables used in the regression model. It reveals weak positive and negative correlation between independent variables and with the dependent variable. The positive correlations imply that as the explanatory variables increases, the effective tax rate also increases.
From table 4.2, the correlation suggests that there is no significant relationships between effective tax rate and leverage, firm age, or firm size. The correlation coefficients are close to zero (-0.016, -0.201, and -0.050), indicating weak relationships and the significance levels also known as p- values are high (0.913,0.162, and 0.731), indicating that the relationships are not statistically significant.
4.2.3 Test of Hypotheses
Table 4.3: Result of test of Multiple Regression
| Model Summary | |||||||||||
| Model | R | R Square | Adjusted R Square | Std. Error of the Estimate | |||||||
| 1 | .207a | .043 | -.020 | 1.540 | |||||||
| Predictors: (Constant), Firm Size, Leverage, Firm Age | |||||||||||
| ANOVAa | |||||||||||
| Model | Sum of Squares | Df | Mean Square | F | Sig. | ||||||
| 1 | Regression | 4.883 | 3 | 1.628 | .687 | .565b | |||||
| Residual | 109.048 | 46 | 2.371 | ||||||||
| Total | 113.931 | 49 | |||||||||
| a. Dependent Variable: Effective Tax Rate | |||||||||||
| Predictors: (Constant), Firm Size, Leverage, Firm Age Coefficientsa Model Unstandardized Coefficients Standardized Coefficients t Sig. B Std. Error Beta (Constant) 1.685 2.744 .614 .542 Leverage -.088 .257 -.051 -.344 .732 Firm Age -.018 .013 -.211 -1.391 .171 Firm Size .020 .371 .008 .054 .957 a. Dependent Variable: Effective Tax Rate Source: Researchers’ Computation, 2024 | |||||||||||
Table 4.3 above shows that the R2 is 0.043 which is about 4.3%. The R2 is used to explain the goodness of fit. Therefore, since it is about 4.3%, it implies that the independent variable explains only 4.3% of the variation in the effective tax rate . Adjusted R-squared (-0.020) on the other hand is negative indicating that the model does not fit the data. Since the F – statistics of 0.687 is less than 2 and the probability value of 0.565 > 0.05, therefore, the model does not significantly predict the effective tax rate.
4.2.3.1 Test of Hypothesis1
Firm size does not have significant effect on the effective tax rate of listed oil and gas companies in Nigeria. From table 4.3, Firm size has positive and insignificant effect on effective tax rate of the firms as the coefficient of the result was 0.020, suggesting that a percentage rises in Firm size brings some insignificant increase in the effective tax rate of the firms. The probability value of 0.957 is greater than 0.05 thus insignificant.
Decision: since the probability value is greater than 0.05 we accept the null hypothesis which states that firm size (FS) has no significant impact on the effective tax rate of listed oil and gas companies in Nigeria we therefore conclude that firm size has positive and insignificant impact on effective tax rate of oil and gas firms in Nigeria.
4.2.3.2 Hypothesis 2
Leverage has no significant effect on effective tax rate of listed oil and gas companies in Nigeria. Table 4.3 revealed a negative and insignificant effect of leverage on effective tax rate of oil and gas firms as the leverage has a coefficient of -0.088 and probability value of 0.732 which is greater than 0.05. This implies that as leverage increases, the effective tax rate decreases as well.
Decision: since the p-value is greater than 0.05, the study fail to reject the null hypothesis which states that leverage has no significant effect on the effective of oil and gas firms in Nigeria. We therefore conclude that leverage negatively and insignificantly affect Effective Tax Rate of oil and Gas Firms in Nigeria.
4.2.3.3 Hypothesis 3
Firm Age has no significant effect on Effective Tax Rate of listed Oil and Gas Companies in Nigeria. Table 4.3 revealed a positive and insignificant effect of firm age on oil and gas firms as the firm age has a coefficient of 0.018 and probability value of 0.171 which is greater than 0.05. This implies that as firm age increases, the effective tax rate increases as well.
Decision: since the p value is greater than 0.05, the study accepts the null hypothesis which states that firm age does not have significant impact on the profitability of oil and gas firms in Nigeria. We therefore conclude that firm age positively and insignificantly affect effective tax rate of oil and gas firms in Nigeria.
4.3 Discussion of Findings
This section discuss results in relation to each of the objectives of the study
4.3.1 Firm Size and Effective Tax Rate
Objective 1 was to examine the effect of firm size on Effective Tax Rate of oil and gas companies in Nigeria. The study revealed a positive and insignificant effect of firm size on effective tax rate of the pooled firms under study. Apriori expectation is that firm size should have positive effect on the Effective Tax Rate of Oil and Gas Companies in Nigeria which the finding is congruent with the positive relationship implies that larger firms face higher income tax burdens. The finding is in agreement with the finding of Zimmerman (2019), and Ilaboya, Obasi and Izevbekhai (2019) who found a positive relation between firm size and effective tax rate of some selected companies in Nigeria. Also the finding disagree with the findings of Dyreng et al. (2017), and Richardson and Lanis, (2018) who found a negative relation between of size and ETR in Nigeria. Though it is insignificant, the positive effect implies that as firm size increases the effective tax rate increases.
4.3.1 Leverage and Effective Tax Rate
Objective 2 is to examine the effect of leverage on effective tax rate of oil and gas companies in Nigeria. The research revealed a negative and insignificant effect of leverage on oil and gas firms in Nigeria. This is in line with prior expectation as debt financing decreases profit. The findings are contrary to the findings of Hasan, et al. (2019), and Richardson and Lanis (2017) who showed a positive relationship between financial leverage and tax wedge. The finding agree with the findings of Didar, Matsusaka and Ozbas (2021) who found a negative relation between financial leverage and effective tax rate
4.3.1 Firm Age and Effective Tax Rate
Objective 3 was to examine the effect of firm age on effective tax rate of oil and gas companies in Nigeria. It was found that firm age has positive and insignificant effect on the effective tax rate of oil and gas companies in Nigeria. A prior expectation is that firm age should have positive effect on the profitability and effective tax rate of oil and gas companies in Nigeria which the finding align with. The age of the company also shows a positive sign, which means that the older the company, the greater the effective tax rate. This finding disagreed with the findings of Claudio and Urs (2010) who found a negative relation of firm age and ETR. The findings agreed with the findings of Kurawa and Hauwa (2018), and Pratama, (2018).
The correlation matrix as per table 4.2 shows the relationship between dependent variable and explanatory variables. Also it shows the relationship between all pairs of independent variables used in the regression model. It reveals weak positive and negative correlation between independent variables and with the dependent variable. The positive correlations imply that as the explanatory variables increases, the effective tax rate also increases. The values on the diagonal are all 1.0000 which shows that each variable is perfectly correlated with itself.
From table 4.2 result above, we can say that only leverage have a significant negative relationship with effective tax rate.
5.0 Summary, Conclusion and Recommendations
5.1 Summary
The study examined the effect of firm size, leverage and firm age on effective tax rate of listed oil and gas companies in Nigeria.
Using the statistical package, Stata version 14, and multiple regression model were run. The result of the regression indicated that none of the explanatory variables used in the study have significant effect on effective tax rate of listed oil and gas companies in Nigeria.
5.2 Conclusion
The study uses SPSS model to estimate the coefficient for each of the explanatory variables and the result of the study indicates that corporate ETRs overall were below the Statutory Tax Rate during the period of the study and differ considerably between companies from the same sector during the period under review. The mean of the overall ETRs and for all sectors were below the statutory tax rate of 30% for the period of the study based on the results of data analysis and discussion in chapter four, the study has reached the following conclusion:
The study provided empirical evidence on the association between firm attributes determinants (firm size, leverage and firm age) and effective tax rate of listed oil and gas companies in Nigeria. Specifically, the study concluded that firm size has a positive and insignificant effect on effective tax rate of listed oil and gas companies in Nigeria indicating that the higher the size of the firm the higher the ETR.
The study also concluded that there is a positive and insignificant effect of leverage on ETR of listed oil and gas companies in Nigeria suggesting that as debt to equity financing increases effective tax rate of sampled companies increases. Moreover, the study concluded that firm age has a negative and insignificant effect on effective tax rate of listed oil and gas companies in Nigeria.
From the findings, is evident that tax incentives provided by the tax authorities in Nigeria is substantially insignificant even though they vary from sector to sector. This dispersion of ETR found in the sector challenges the equity of the corporate tax system in Nigeria
5.3 Recommendations
The relationship of leverage with ETR turned positive after the reform indicating that highly levered firm no longer enjoy low tax burden after the reform. Therefore, debt financing should be choice in making financing decision
5.4 Limitations of the Study
The findings of this research should be interpreted bearing in mind the following limitations:
Due to the fact that the study was concerned with the examination of firm attributes and taxation for listed oil and gas companies in Nigeria, the sample size excluded companies listed on the Nigerian Exchange Group (NGX) on other sectors and also companies within same sector but not listed. Though there are 9 listed companies, a few differences still exist among them such as unavailability of data. This reduced the sample size of the study and consequently, the generalizability of the study findings across all oil and gas companies in Nigeria. Again, the study covered only five years from 2013 to 2022 as period of study. That means the period before 2013 is not covered by the study.
5.5 Suggestions for Further Research
The study examined the impact of firm attributes proxies by firm size, age and leverage on effective tax rate of listed oil and gas companies in Nigeria. Further research is suggested in the following areas:
The same research can be replicated for both listed and non-listed oil and gas companies in Nigeria. The present study focused on listed oil and gas companies from 2013 to 2022 only, and so limits the generalizability of the research findings to all oil and gas companies in Nigeria. A study that will comprise non- listed companies in Nigeria is therefore needed.
The same study can be replicated by bringing in other firm and taxation attributes. A study that includes the suggested variables will enhance comprehensive understanding and enrich local literature on determinants of corporate tax and profitability in Nigeria.
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