Journal of Economics &

Management Research

Research Article Open Access

The Moderating Effect of Profitability on the Relationship

between Ownership Structure and Corporate Tax
Avoidance in Nigeria Listed Consumers Goods Firms

Tanko Udisifan Michael

Department of Accounting, Federal University Wukari, Taraba State, Nigeria

Abstract
The study examined the moderating effect of profitability on the relationship between ownership structure and
corporate tax avoidance of listed consumers goods firms in Nigeria. Ownership structure was proxied by mana-
gerial ownership, institutional ownership and foreign ownership, tax avoidance was measured by GAAP effective
tax rate while profitability was measured by return on assets. Secondary data was extracted from the sampled firm
annual report and accounts. The data were analysed using Generalized Least Square. The study revealed a negative
and insignificant relationship between institutional ownership and corporate tax avoidance. Similarly, moderating
effect of ROA on foreign ownership encourage tax avoidance. The study recommended that tax authorities should
carry out stringent tax audit and investigate the activities of firms to ensure that tax avoidance of firms is within
the armpit of tax law. If this is done it will help to know if firms are actually paying the actual taxes they support to
paid or not. The study also recommend that government should review the provisions for tax allowances and relief
granting to corporate entity. Because most of the firms reported losses in some years in order to take advantage of
loss relief while other purchase non-current for the purpose of enjoying capital allowances. If this is done it will
enhance government revenue generation through tax and increase GDP via tax-revenue.

Corresponding author: Tanko Udisifan Michael, Department of Accounting, Federal University Wukari, Taraba
State, Nigeria, E-Mail: [email protected]

Received: February 02, 2020 , Accepted: February 13, 2020, Published: February 22, 2020

Keywords: Ownership Structure, Corporate Tax Avoidance, Moderating Effect of Roa, Consumers Goods
Firms, Nigeria.
Introduction for companies because it removes a part of the benefits with-
Tax is the major source of revenue to government of every out immediate compensation [1].
developing economy. Similarly, tax is also major concern for Tax is considered as compulsory levies on taxable individual
companies because its impact on company’s income. Indeed, and corporate bodies. The issues of tax avoidance have been
it remains a misfortune and is considered as a significant cost a predicament that called attention of researchers from the
inception of tax legislations and are prevalent in every coun-

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Citation: Tanko Udisifan Michael(2020) The Moderating Effect of Profitability on the Relationship between Ownership Structure and Corporate Tax
Avoidance in Nigeria Listed Consumers Goods Firms. Journal of Material Sciences & Manufacturing Research. SRC/JESMR/103

try where taxes are levied which Nigeria is not an exception monitoring and reduce agency costs, but on the other hand,
[2-4].This problem is most common with corporate taxpayer large shareholders can expropriate smaller investors or harm
that corporate entities. performance by monitoring managers in an excessive man-
ner [9].
The objective of every organization is to maximize wealth of Ownership structure aspect deals with having an individual,
the shareholders. Corporate owners such managerial owners, institution, government, family or managers with reason-
institutional owners, foreign owners put in place every legal able unit of shares in a company, the quantum of managerial
means to achieve this objective by engaging on tax avoid- shareholding, ownership of shares by other institution and
ance in order to reduce their tax expenses. Tax on the other foreign shareholders are regarded as key internal governance
hand, is an important source of revenue to government for mechanisms that ought to provide effective monitoring mea-
the development of a country. For the government to carry sures over management [6]. The level of share held by man-
out its constitutional objectives such as infrastructures provi- agers as well as foreign ownership will encourage managers
sion and maintenance, resource redistribution, employment to engage on tax avoidance in other to serve their interest
generation and economic development among others it need not possibly for other investors. This may lead to collapse of
funds. Despite the benefits provides by taxes to nations, tax firm and equally affect economic growth. The objective of
non-compliance and loss of tax payment which tax avoid- this study is to investigate the moderating effect of profit-
ance is one of the manifestations, is an issue prevalent in ev- ability on the relationship between ownership structures and
ery society and it is as old as tax itself [3]. corporate tax avoidance.

Recently on 08 September, 2019 The British Broadcasting Literature Review

Corporation reported that Nigeria could be facing a fiscal This chapter presents the review of related literature on the
crisis if it does not improve its ability to generate more rev- concept of ownership structure, profitability and corporate
enue through collection of taxes. They further provide that tax avoidance, and theoretical framework. Related empirical
government expenditure have doubled and debt servicing studies were also reviewed in this chapter.
have as well increase but revenues have missed their target
by at least not less than 45% since 2015. For instance, Federal Concept of Ownership Structures
Inland Revenue Service targeted revenue of eight (8) trillion
naira in 2018 but collected 5.32 trillion. Despite the facts that, Ownership structures are the unit and value of shares held
this is the highest revenue collection in Nigeria history, but by directors/managers, other corporate bodies (institution),
they could not meet the targeted revenue. The breakdown by foreigners, government, family, among others. According
Chairman of FIRS Mr. Tunde Fowler reported that 46.38% of to Peter ownership is the stockholding by shareholders and
2018 revenue was generated from oil source of revenue while directors which include shares held by directors/managers,
the remaining 53.62% were generated from non-oil source institutional shareholding, shares held by foreigners, concen-
of revenue. This poor revenue generation could be attributed trated shareholding, government shareholding, family own-
to tax avoidance which most corporate owner employed in ership [5]. He further states that institutional ownership and
order to reduce tax expenses. foreign ownership are external corporate governance mech-
anism. Ownership structure can be considered as both inter-
Ownership structure has been identified as one of corporate nal and external corporate governance mechanism. Lietz as-
governance mechanisms that influence corporate tax avoid- serts that ownership structure is also one of the mechanisms
ance. Studies have revealed that corporate ownership has of corporate governance [10]. Theoretical assertion provided
both positive and negative impact on corporate tax avoid- that concentrated ownership is a direct way to align cash flow
ance studies like Peter; Mohammed; Boussaidi and Hamed; and control rights of outside investors [11].
Annuar et al. Zhou found that state ownership and lower
proportion of controlling shares pursue low aggressive tax Jensen and Meckling viewed ownership structure from agen-
strategies and maintain higher ETRs [4-8]. Owners of busi- cy problem with regard to separation of the ownership and
ness will intend to increase their income by exploiting the control over the business activities [12]. Peter opined that
loophole in the tax law. The relative amount of stock owned ownership structure is not only concerned with agency cost,
by individual shareholders is often measured by ownership but also other vital factors that will influence the companies
concentration. A very concentrated ownership can improve which may include votes, capital, and the identity of equity

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 Citation: Tanko Udisifan Michael(2020) The Moderating Effect of Profitability on the Relationship between Ownership Structure and Corporate
Tax Avoidance in Nigeria Listed Consumers Goods Firms. Journal of Material Sciences & Manufacturing Research. SRC/JESMR/103

of ownership [5]. Demsert and Lehn asserts that there are Weidenfeld and Nicholson opined that profit is the reward to
other factors that may influence the ownership structure of owner of capital but with the return to capital as objectives
companies which include size of the company, control po- to business entity activities [16]. The paramount aims of any
tential, regulating systems, potential comfort from corporate business entity is to make profit in order to prevail in the
outcomes [5,13]. Institutional ownership, foreign ownership, transitional economic and market conditions. Pathirawasam
owner’s concentration helps to monitor the activities of man- and Wickremasinghe established that equity investors are
agers and reduced agency problem which in turn enhance the owners of the firm they are more concerned about the
shareholders wealth. profitability of their firm in order to maximize wealth [17].
Firms put in all strategies and designed in order to achieve
Managerial ownership deals with member of the board hav- high profitability. Furthermore profitability is an indication
ing shares in a company. Ownership by member of board of efficiency and it used to measure the control and worth
creates means for the managers to protect their financial in- of investment to owners, margin of safety to creditors, pools
terest in the company [7]. In order to reduce agency cost and of benefits to employees, to the Government as a measure
conflict of interest managers are allow to hold some propor- of taxable capacity and the basis to take legislative action, to
tion of company shares. Managerial ownership in a company the country revenue are the index of economic growth and
motivates managers to protect their interest which they may development, and rise in the standard of living of the citizens
likely engage in tax avoidance. Zhou found out that higher [18]. Contrary to Waston and Brigham view, Tulsian stated
the percentage of directors’ interest lower effective tax rate that using profit as business organization efficiency is irrele-
[8]. vance [19]. He further said that high profitability does not
always indicate sound organizational efficiency nor low prof-
Institutional ownership is the shares held by other corporate itability always indicates organizational poor performance.
bodies in another corporate entity. Institutional ownership
can include shares held by mutual funds, pension compa- Concept of Corporate Tax Avoidance
nies, hedge funds, insurance companies, banks among oth- Tax avoidance does not have universal accepted definition.
ers. Institutional ownership can serve as means to monitored However, Murphy defined tax avoidance as the process
and control behaviour of managers which will make them whereby taxpayer round tax law without breaking the tax law
to maximize the wealth of the shareholders. This is achieved [20]. However, this definition did not the state purpose why
due to the fact that owners such as institutional owners put in taxpayers round the tax law without breaking the law. The
more trusteeship responsibility and motivation that will earn purpose of the taxpayers rounding the tax law is to reduce
more to the firms and lead to maximization of sharehold- tax expenses Tax avoidance can be considered as the strate-
ers wealth. According Boshe, institutional ownership trust- gies employed by taxpayers in order to reduce tax expenses
eeship responsibility give room for additional incentives to within the armpit of the law. Tax avoidance involves means of
make decisions that will lead to maximization of sharehold- exploiting the loophole in the tax law in order to reduced tax
ers wealth [14]. Furthermore, foreign ownership as one the expenses by companies. Tax avoidance is legal as long as is
ownership structure implies the number and value of shares within the armpit of the law. It becomes illegal and penalty is
owned by foreigners that is non-citizen of where the compa- accomplished such act if is carryout outside the tax law. This
ny is domicile. Recently, it has been observed by Shamimul, means tax evasion. According to Salihu, Sheikh-Obid & An-
Rashidah, and Zabid that companies that carryout operation nuar; Salihu, defined corporate tax avoidance as a decrease
locally and has foreign investors, such companies would over or absolute reduction in the explicit corporate tax liabilities
or under state their earnings in order to meet the demand of [21,22]. Management used tax avoidance in order to maxi-
the foreign owners [15]. mize shareholders wealth or their interest.

Concept of Profitability There are several methods in which taxpayers take advan-
According to Nimalathasan profit is the core objective of tage of, by exploring the loophole in the tax law in order to
any business entity, which is not only measured by a prod- reduce tax liability. These opportunities include advantage of
uct success, but also of the improvement of the market [16]. statutorily deductible allowances, applications for statutorily
Furthermore, profitability is the ability of a business entity to approved reliefs, use of tax favoured investments to various
generate profit through effectively used of available resourc- other ingenious schemes [6]. Taxpayer also used either prof-
es. Profitability is the stage at which business entity inflows it sharing/income shifting or changing the characteristics
of resources are more than outflows of resources. Similarly, of their income in order to reduce amount payable for tax

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Citation: Tanko Udisifan Michael(2020) The Moderating Effect of Profitability on the Relationship between Ownership Structure and Corporate
Tax Avoidance in Nigeria Listed Consumers Goods Firms. Journal of Material Sciences & Manufacturing Research. SRC/JESMR/103

purpose. Stiglitz established a theory of tax avoidance, he efit them. On other hand if they have shares in a company,
provided three principles that taxpayer can apply in relation they may engage on tax avoidance to increase their wealth.
to avoidance of taxes, the ability to postpone taxes, tax arbi- Badertscher, Katz and Rago argued that managerial owner-
trage across taxpayer with different tax brackets or different ship firms do not have incentives to manage taxes through
marginal tax rate at different times and tax arbitrage across reducing taxes in the sense that managers are risk averse in
income streams facing different tax treatments. These prin- taking investment decision [27].
ciples are similar to income shifting, tax haven and transfer
pricing [23]. Dyreng, Hanlon and Maydew observed that managers con-
tribute significantly in influencing the tax planning activities
Income shifting is the ability of taxpayer to move or shift in- of firms such as Chief Executive Officers (CEOs) [28]. Sa-
come between different tax bases. This is a situation where laudeen and Ejeh established that activities that are capable
the total amount of assets, income that can be taxed by tax of influence a firm’s tax aggressiveness such as budgeting to
authority is shift from high to low tax brackets individuals. hire tax experts to reduce tax expenses are handled by man-
It can be within a country or from one country to another. agers despite the fact that they are not directly responsible
In the other hand transfer pricing is a situation whereby in- for developing tax strategies [26]. Desai and Dharmapala as-
tra-group prices for certain goods that are traded within the sert that tax planning is the result of managers-shareholders
same group of companies at different location are manipulat- agency conflicts [29]. For the purpose of achieving self-inter-
ed in order ensure maximum tax savings. It is more common est by managers managerial ownership may affect tax avoid-
with Multinational Corporations (MNCs) and group com- ance either positively and negatively even though numerous
pany structures, shift income in order to avoid being taxed arguments above shows that the connection between mana-
at a higher statutory tax rate [24]. Tax havens are mostly in gerial ownership and tax avoidance is still unclear.
countries that give foreign individuals or corporate entities
low rate of tax. Companies take the advantage of the above Nexus between Institutional Ownership and Tax Avoid-
listed method of tax avoidance to reduce tax payable. ance

Nexus between Managerial Ownership and Tax Avoidance Institutional ownership is the proportion of shares held by
institutional shareholders in a firm. For instance, insurance
In order to align the interests of the managers and those of companies, pension funds, hedge funds among others [5].
the shareholders the managerial ownership is used. The Shleifer and Vishney assert that institutional investors would
managerial ownership is used to help to remedy agen- keen interest on economic of companies because of their
cy problems and conflict of interest between the managers huge investment and voting power [30]. By so doing they
and shareholders. If managers have stake (holds shares) in a may like managers to also give more attention to economic
company they will put more effort to reduced tax expenses in performance which will benefit them and exploit all kinds of
order to increase the company’s earnings which will in turn opportunities for self-interest by the managers. Khan, Suraj
favour them. When making decision for capital investment, and Liang argue that institutional investors do not need ex-
managers would like to take the investment tax credit into plicitly and specifically to promote tax avoidance for two rea-
account more if the firm uses an after-tax bonus plan. Man- sons [31]. First, their interest is in increasing shareholders’
ager-controlled companies are not concerning in maximiz- wealth that is earnings after-tax, this wealth maximization
ing shareholder wealth, but maximizing self-interest [25]. can be achieved by combination of any available cost-re-
He further opined that one of the direct hints to create the duction strategies to managers. This implies that if the right
higher wealth transfer is the use of taxes. The lower the tax strategies for cost reduction are put in place by managers,
paid, the higher the wealth to managers as compensation on shareholders wealth would be increase without involving
an after-tax basis. When managers paid less tax, they may be in tax avoidance. They believed that managers are likely to
compensated by shareholders for such effort. heightened incentive in order to show better after-tax per-
formance to justify their compensation to new institutional
According to Salaudeen and Ejeh, managers may not be like investors who, as new owners, who are more likely to assess
to lower effective tax rates in order to increase shareholders’ the pay-performance relation. Second, tax avoidance is a po-
wealth because this does not directly benefit them [26]. If litically charged issue that can attract unfavourable attention
managers do not have any proportion of shares in a company, from media, government, and consumer and public interest
they may not have interest in tax avoidance as it will not ben- groups toward both the firm and its large investors in a term
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J Econ Managem Res 2020
Citation: Tanko Udisifan Michael(2020) The Moderating Effect of Profitability on the Relationship between Ownership Structure and Corporate
Tax Avoidance in Nigeria Listed Consumers Goods Firms. Journal of Material Sciences & Manufacturing Research. SRC/JESMR/103

referred to as tax-shaming [32]. Many institutional investors ious accounting years. Higher profitability indicates better
manage pension, premium and other funds for have large financial performance of a firm. Yuniarwati, Dewi and Lin
percent of the general public, and tax shaming could result opine that if companies have a high profitability such compa-
in adverse private consequences for managers of these funds ny will not take tax avoidance strategy in order to reduce tax
and reduce the firm reputation [31]. burden [36]. The amount of profits earned by the company
will determined the amount of income tax to be paid by the
Institutional ownership may reduce agency problem because company. Increased or decrease in earnings that affect the
of their stringent monitoring of the activities of the firm income tax, may make a company to make tax avoidance.
carryout by managers. This will make managers to proper- Kurniasih and Sari asserts that value of firm net profit will af-
ly used funds realized from tax saving in order to increase fect the amount of its profitability [37]. High profitability can
firm financial performance. According to Khurana and Mos- provide an opportunity for companies to conduct a tax plan-
er, companies with higher levels of long-term institutional ning, which aims to reduce the amount of tax liabilities [36].
ownership are less tax aggressive because institutional own-
ers are more concerned with long-term consequences of tax Profitability as moderating variables can either increase or
avoidance strategy [33]. They further opine that in contrast, decrease firm tax avoidance. This study examined what is
higher levels of short-term institutional ownership would the level of company’s tax avoidance if higher profitability
lead to more tax reduction as institutional owners are more is earned and if low profit is earned. High level profitabil-
concerned with short-term profits making. Ying argue that ity should theoretically, have effect of decreasing firms tax
institutional ownership has stringer incentives to monitor as avoidance. If firm has more cash in its disposal it is expected
well as influence managers for the purpose of protecting the not to take tax avoidance action.
investment of the institutions [34].
Empirical Studies
Nexus between Foreign Ownership and Tax Avoidance
Peter investigates the impact governance mechanisms on tax
Foreign ownership may have nexus with tax avoidance. planning in listed Nigerian non-financial service from 2008
According to Grubert and Mutti, Hines and Rice, Kinney to 2017 [5]. The study used secondary data which was gotten
and Lawrence, finds that developed countries multinational from the sampled firms annual reports and accounts. The
companies such as U.S. paid low taxes in their host coun- study employed descriptive statistics, Pearson correlation
tries regardless of level of profitability [4]. However, this have and Generalized Least Square to test the formulated hypoth-
not been intensively examined in developing countries es- eses. The study finds that managerial ownership and institu-
pecially Nigeria. Foreign shareholders may force managers tional ownership has positive and insignificant relationship
to strategies on how to reduce taxes because of the low level with Effective Tax Rate while foreign ownership has negative
of tax payment in their countries in order to increase their and insignificant effect on ETR. The study use leverage and
earnings. According Peter, foreign ownership will increase ROA as control and it revealed a positive and significant re-
the level of capital income taxation that may materialize lationship between leverage, ROA and ETR. Salaudeen and
where there is no international tax policy coordination [5]. Ejeh ascertained the effect of equity ownership structure and
He further established that foreign ownership is affected if corporate tax aggressiveness in Nigeria non-financial service
countries will increase their welfare through coordination of companies [26]. The data were extracted from the annual re-
tax policies, if they do, weather the tax coordination policy is ports of 40 non-financial firms that made up the sample of
to increase or decrease capital income tax levels. A method the study from 2010 to 2014. The study reveals that owner-
by which firms with foreign operations reduce their tax ex- ship concentration has a positive but insignificant effect on
penses is by shifting income and expenses between high- and ETR while the effect of managerial ownership on ETR was
low-tax jurisdictions [35]. found to be significantly negative. Furthermore, the results
show that leverage is significantly and negatively related with
Moderating Effect of Profitability on Relationship be- tax aggressiveness while return on assets is positively related
tween Ownership Structure and Tax Avoidance with tax aggressiveness. Firm size has not significant relation
with tax aggressiveness. While, Machek and Kubicek investi-
Profitability is the measuring of firm financial performance. gate the relationship between ownership concentration and
Profitability is used as a technique to ascertain the ability of performance in Czech Republic [9]. The study employed sec-
firm to generate profit in a particular accounting year or var- ondary data extracted from Czech listed firms from 2007 to

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Citation: Tanko Udisifan Michael(2020) The Moderating Effect of Profitability on the Relationship between Ownership Structure and Corporate
Tax Avoidance in Nigeria Listed Consumers Goods Firms. Journal of Material Sciences & Manufacturing Research. SRC/JESMR/103

2015. The study used Ordinary Least Square (OLS) to ana- and significant relationship with Effective Tax Rates (ETR).
lysed the data. The study found that ownership concentra- In same vein Boussaidi and Hamed examined the impact of
tion has negative and significant relationship with ROA and governance mechanisms on tax aggressiveness; empirical ev-
positive and significant relationship with Return on Equity. idence from Tunisian [7]. The study is based on the analysis
of a sample of Tunisian listed firms over the 2006-2012 peri-
Mohammed assessed the impact of corporate governance ods. The study employed multiple regressions to analyse the
on tax avoidance in Nigeria deposits money banks [6]. The data extracted from the firm’s annual reports and accounts.
study used 14 out of the 15 listed DMBs on the Nigeria stock The study revealed that managerial ownership has positive
exchange (NSE). Data for the study were sourced from sec- and significant effects on firms` tax aggressiveness activities.
ondary sources from the annual financial statements of the
studied DMBs for the period 2006 to 2014. The study em- Yetty, Eka and Eneng examine if institutional ownership,
ployed the Arellano-Bond Generalized Method of Moments board independence, board composition, and leverage have
(GMM) estimation technique to analyse the data. The study effect on tax planning [39]. The study used 99 listed manu-
finds that ownership concentration has negative and signif- facturing firms on Indonesian stock exchange for the period
icant impact of ETR, it also documented positive and in- of 2010-2014. The study employed Non-parametric statistics
significant relationship between board shares (managerial to analyse the data. The results revealed institutional owner-
ownership) and ETR while the moderating effect of board ship has significant effect on tax planning. Andrew and Ste-
independence on the relationship between ownership con- phen ascertained whether institutional ownership affect tax
centration and ETR has positive and insignificant impact planning using changes in Russell 1000/2000 index member-
on ETR similarly, the moderating effect of board size on the ship over U.S they find that institutional ownership signifi-
relationship between ownership concentration and ETR are cantly decrease ETR and prioritization of cash over book tax
positive and insignificant. The study used ROA, firm size and savings of the selected firms [40]. Hairu et al. investigate the
leverage as control variable. However, it revealed that ROA effect o ownership structure and tax avoidance of listed firms
and firm size has negative and significant effect on ETR while in Malaysia. The used panel data from the annual report and
leverage has positive and insignificant relationship with ETR. accounts of the sampled firms. The study revealed that for-
Khan, et al. Examined the effect of institutional ownership eign and family ownership is associated with tax avoidance.
on corporate tax avoidance in China [31]. The use secondary
data obtained from Chinese listed firms. The study used mul- Methodology
tiple regression. It was found that institutional ownership has The research design used in this study is the quantitative re-
positive and significant influence on ETR. However, Yuniar- search design which is line with the positivism lens or world-
wati, et al. carryout study on the factors that Influence tax views [41]. The positivism views reality as one, they believed
avoidance in Indonesia Stock Exchange from 2013 to 2015 that truth is one and researchers have not influenced on
[36]. The used employed the multiple regression to analysed what is being study. The design is believed to be adequate
the data which are secondary data. This study used a sample and appropriate for the measurement of the moderating ef-
of one hundred and fifty-three samples. The study revealed fect of profitability on the relationship between ownership
that profitability has an influence on tax avoidance while the structure and corporate tax avoidance because the data used
proportion of independent commissioners, audit committee, are numeric extracted from the annual reports and accounts
audit quality, and firm size have no influence on tax avoid- of the sampled companies. The quantitative design enables
ance. the study to confirm and test the applicable theories, data
collected, techniques of analysis and validate the formulated
Salawu and Adedeji assessed the impact of corporate gover- hypotheses. According to Creswell, quantitative designs are
nance on tax planning in Nigeria listed non-financial service divided into three; experimental, survey and correlational
companies [38]. The study used 50 companies as sampled designs [41]. This study employed the correlational research.
size. The data used in the study were collected from the au- This design is suitable for this study because it can predict
dited financial statement of the selected non-financial listed the effects of one variable(s) on other variables as well as the
companies in Nigeria. The study used generalizes method of relationship between two or more variables.
moments (GMM) to analysed the data. The result showed
that there is positive and significantly relationship between In order to arrive at the sample size for the study two-point
ownership concentration, managerial ownership and ETR. filters was used. The criteria are; the firm must be listed be-
Similarly, firm value (TobinQ) and firm size has positive fore the year 2009 and may have not been delisted during the

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Citation: Tanko Udisifan Michael(2020) The Moderating Effect of Profitability on the Relationship between Ownership Structure and Corporate
Tax Avoidance in Nigeria Listed Consumers Goods Firms. Journal of Material Sciences & Manufacturing Research. SRC/JESMR/103
period of the study (2008 to 2018) and the firm must have dent variables, ETR is the dependent variable and firms’ size,
required data for the study. As a result of the above criteria firms’ age and leverage are the control variables.
13 firms meet the requirement to form the sample size of the
study. The independent variables are ownership structure, institu-
tional ownership and foreign ownership. The moderating
Data used in this study were obtained from secondary source. variables are interaction effect of ownership structure, insti-
The secondary source is the annual report and account of tutional ownership and foreign ownership. The dependent
the selected consumers’ goods firms listed on Nigeria Stock variable is corporate tax avoidance measured by GAAP Ef-
Exchange (NSE). The data obtained from these sources were fective Tax Rate (ETR), while the control variables are firms’
on managerial structures, institutional ownership structures size, firms’ age and leverage.
and foreign ownership structures which are the indepen-

Variable Variable Type Measurement

Effective Tax Rate Dependent Tax expenses divided by pre-tax income
[7,26].
Managerial Ownership Independent Percentage of shares held by directors/
managers [7,26].
Institutional Ownership Independent Proportion of shares owned by institutions
such as pension companies, insurance
companies etc. [31].
Foreign Ownership Independent Proportion of shares owned by foreign
investors [4].
ROA Moderating Profit after tax and interest divide by total
assets. [38,42].
MO*ROA Moderating Interaction between the proportion for
managerial ownership and Return on
Assets.
IO*ROA Moderating Interaction between the proportion for
institutional ownership and Return on
Assets.
FO*ROA Moderating Interaction between the proportion for
foreign ownership and Return on Assets.
Firm size Control Natural Log of Total assets [4,26,43].
Firm age Control Natural Log. of firm age, age is the age of
firm from date of listing [44].
Leverage Control Total liabilities divide by Total assets [4,5].

Table 1: Measurement of Variables

Techniques of Data Analysis

The study employed three techniques to analyse the data extracted. These techniques are descriptive statistics, correlation
and multiple regressions. Description statistics was used in order to ascertain the nature of the data generated. It was also
used in measure of central tendency, and dispersion for the study. These descriptive statistics include mean, standard de-
viation, minimum and maximum values of the variables.

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Citation: Tanko Udisifan Michael(2020) The Moderating Effect of Profitability on the Relationship between Ownership Structure and Corporate
Tax Avoidance in Nigeria Listed Consumers Goods Firms. Journal of Material Sciences & Manufacturing Research. SRC/JESMR/103
The correlation was used to ascertain the relationship be- ue is greater than 0.1 the null hypothesis will not be reject-
tween the dependent variable and the explanatory variables. ed, whereas if the p-value is less than or equal to 0.1, the
In order to achieve this, the Pearson product moment was null hypothesis will be rejected.
employed. The multiple regressions were used to examine
the impact of the explanatory variables on the dependent Results and Discussion
variables. Multiple regressions are suitable for this study
because of the nature of the data considering combines of Robustness test is a test which is done to ensure the va-
time series and cross-sectional data and it can explain any lidity of all statistical inferences for the study, in order to
variation in dependent variables resulted from change in assess the impact of distribution problems, in addition to
explanatory variables. the problems of outliers before deciding on the appropriate
statistical method for the study such as parametric statis-
A multiple regression equation is set up to investigate the tics. These tests include Multicollinearity, heteroscedastici-
hypothesized relationships between the dependent variable ty, normality of residuals and Hausman test. These are dis-
and the explanatory variables in this study. The regression cussed below.
model is used because it assumed linearity and normality
and it ascertains the impact of the explanatory variables on Multicollinearity Test
dependent variable. The regression models used are given
as: In order check for the presence of multicollinearity between
independent variables, correlation coefficients and variance
ETR =β 0it + β1 MOit + β 2 IOit + β3 FOit + β 4 FSit + β5 FAit + β 06 Levit + eit 1 inflation factors (VIF) with tolerant values are use. This
study employed VIF to check whether the explanatory vari-
ETR =β 0it + β1 MOit + β 2 IOit + β3 FOit + β 4 MOit * ROAit + β5 IOit * ROAit + β 06 FOit * ROAit ables of the model suffer from multicollinearity. The VIF
+ β 7 FSit + β8 FAit + β9 Levit + eit 2
in excess of 10 should be taken as an indication of harmful
Where; multicollinearity, and the result of the test shows that the
ETR = Effective Tax Rate maximum VIF is 4.35 and the minimum VIF is 1.39 and
β0= intercepts autonomous variable. these are less than 10 which indicate absence of multicol-
β1 - β9= the regression coefficients in the explanatory vari- linearity [45,46].
ables
it= time for intercepts Heteroskedasticity Test
MO = Managerial Ownership
IO = Institutional Ownership The result of Breusch-pagan/Cook-weisberg test and Cam-
FO = Foreign Ownership eron & Trivedi’s decomposition of imtest was employed for
ROA = Return on Assets heteroskedasticity test. The test reveals that the data are free
FS = Firm size from heteroskedasticity at 0.0811 and 0.0475 for model 1
FA = Firms age and model 2 respectively.
Lev = Leverage
* =Interaction Normality Test
Є = Random error Term Normality implies that errors (residuals) should be normal-
Model 1 was used to test hypothesis 1, 2 and 3, model 2 was ly distributed. The Shapiro-Wilk test shows that the data
be used to test hypothesis 4, 5 and 6 are normally distributed. The Shapiro-Wilk test for normal
The hypotheses were tested at 0.1 level of significance and data is less than 5.
90% confidence level. The decision rule is that when p-val-
ue is greater than 0.1 the null hypothesis will not be reject- Hausman Test
ed, whereas if the p-value is less than or equal to 0.1, the The Hausman test is performed to decide between the ran-
null hypothesis will be rejected. dom effect and fixed effect model estimation. The fixed ef-
fect estimator assumed that the intercept does not varies
Model 1 was used to test hypothesis 1, 2 and 3, model 2 was over time. This implies that the intercept is time invariant
be used to test hypothesis 4, 5 and 6 and correlate with the explanatory variables. While the ran-
The hypotheses were tested at 0.1 level of significance and dom effect states that intercept differ over time and does not
90% confidence level. The decision rule is that when p-val- correlate with the explanatory variables. The decision rule
J Econ Managem Res 2020 Volume 1 | Issue 1 | 8 of 16
Citation: Tanko Udisifan Michael(2020) The Moderating Effect of Profitability on the Relationship between Ownership Structure and Corporate
is that
Tax if theinHausman
Avoidance testConsumers
Nigeria Listed probability chi-square
Goods is equal
Firms. Journal ing
of Material 97.80%
Sciences shares are owned
& Manufacturing bySRC/JESMR/103
Research. shareholders who are not
to or less than 0.05 the fixed effect should be use and if the director in the sampled firms. The standard deviation of the
probability chi-square is greater than 0.05 the random effect managerial ownership is 0.0464. This indicates there is wide
should be use. The results of the test for the two models are variation of shareholding of managers among the selected
greater than 0.05 level of significance which implied that within the period of the study as confirmed by the max-
the random effect estimation was used. imum of 18% and minimum of 0.0011%. The Table also
revealed that institutional ownership of the sampled con-
Discussion of Results sumers good firms has mean of 33.49%. This provide that
about 35% average proportion of the selected firm shares
This section shows the results of the analysis conducted on are owned by institutional investors while the remaining
the data collected from the annual reports and accounts of 65% are owned by other investors other than institutions.
the sampled consumers goods firms for the period of the The standard deviation is 0.2257 this means that institu-
study. It includes the descriptive statistics, correlation and tions shareholding among the sampled firms is widely var-
regression results. ied. The ranged from a minimum of 0.06% to a maximum
of 83% indicative of wide variation in institution ownership
Descriptive Statistics during the period of study. Foreign shareholding for the pe-
riod ranged from a minimum of 0.000% to a maximum of
Variables Obs. Mean Std. Min Max 76%. This suggests wide variation in foreign ownership in
Dev. the sampled consumers goods firms. Mean for foreign own-
ETR 143 0.2551 0.030 0.0021 0.5197 ership for the period under study was 28.76%. This implies
that the average shares owned by foreign is about 28.76%
MO 143 0.0220 0.0464 0.00001 0.1812
while the remaining 62.24% of shares of the selected con-
IO 143 0.3349 0.2257 0.00006 0.8333 sumers firms are owned by Nigerian. Standard deviation of
FO 143 0.2876 0.2804 0.0000 0.7601 foreign is 0.2804 indicate that there is no difference between
MO*ROA 143 0.0028 0.0067 0.00011 0.0397 shares owned by foreign investors among the sample firms.
IO*ROA 143 0.0429 0.0566 0.00005 0.3268 It also means that the foreign investment in Nigeria con-
FO*ROA 143 0.0336 0.0478 0.0000 0.2097 sumers goods firms is low.
FS 143 10.6152 0.6478 8.9237 12.083
The mean value for the interaction between managerial
FA 143 1.4087 0.2246 0.0000 1.7243
ownership and return on assets is at the average of 0.0028.
Lev. 143 0.3848 0.2627 0.0016 1.4347 with standard deviation of 0.0067. This implies there is no
Source: STATA 14 Output from data Extracted from Annual Report and
Accounts. significant difference between interaction of ROA on man-
Table 2: Descriptive Statistics. agerial ownership in the selected firms as the standard de-
viation is less than the mean. The range of maximum of
Table 4.1 shows that the dependent variable, ETR has a 0.03297 and minimum of 0.000011. The mean of the mod-
minimum value of 0.021 and a maximum value of 0.5197. erating effect of ROA on the relationship between institu-
This shows the minimum and maximum rate of tax paid by tional ownership and ETR has the mean of 0.0429. This
the sampled firms. Mean of ETR for the period of the study This indicate the average effect of ROA on institutional
was 25.51% with standard deviation of 0.093. The standard ownership. The moderation effect is 4% and the standard
deviation is lower than the mean this indicate that there is deviation is 6% this implies that the interaction is widely
no significant variation between the ETR of the selected dispersed among the selected firms as supported by the
firms within the period of the study. The mean of the ETR maximum of 32.68% and minimum of 0% while mean in-
is below the statutory corporate income tax rate of 30% in teraction between ROA and foreign ownership was 0.0336
Nigeria this implies the selected firms engage in stringent with standard deviation of 0.0478. This indicate that ROA
tax planning in order to avoid high tax expenses. moderate foreign ownership at average of 3% and the vari-
The independence variables are managerial ownership, in- ation is 0.0478 implies insignificant variation among the
stitution ownership and foreign ownership. The mean for selected firms.
managerial ownership 0.0220. This indicate that within the
period of the study managers owned average shares propor- The control variables of the study were and firm size (Ln
tion of 2.20% of the sampled companies while the remain- Total Assets), firm age (Ln of age of listing) and leverage.
The firm size for the period of the study ranged from a
J Econ Managem Res 2020 Volume 1 | Issue 1 | 9 of 16
Citation: Tanko Udisifan Michael(2020) The Moderating Effect of Profitability on the Relationship between Ownership Structure and Corporate
Tax Avoidance in Nigeria Listed Consumers Goods Firms. Journal of Material Sciences & Manufacturing Research. SRC/JESMR/103

minimum of 8.9237 to a maximum of 12.083. The mean of

10.6152 with a standard deviation of 0.6478. This indicate Correlation Matrix
that there is significant difference between the size of the se- On Table 4.2 shows the correlation coefficients on the re-
lected firm. The size of some firms is larger than others. The lationship between the dependents and the explanatory
mean for firm age is 1.4087 and standard deviation of 0.2246 variables. The values of the correlation range from -1 to +1.
indicative of wide difference among the selected firms in The symbol of the correlation coefficient indicates if the re-
respect to their year of listing on Nigeria stock Exchange lationships between the variables are positive or negative.
(NSE). The minimum value is 0 and the maximum value is Absolute value of the correlation coefficient and larger in-
1.7245. The mean value of leverage was 38.80% with stan- dicate strength of the relationships. The correlation coeffi-
dard deviation of 0.2627. The mean is 38.48% and is highly cients on the main diagonal are 1.000 for all the variables,
dispersed from the standard deviation of 26.27% as such which indicate perfect and positive linear relationship that
suggests that mean leverage among the sampled firms is not each variable has with itself.
the same and are widely spread among the sampled firms.
Also, the leverage for the sampled consumer goods firms
within the period of the ranged from minimum of 0.0016%
maximum of 104% this indicate that some firm’s debt is
higher than total assets. This also implies of high variation
of debts among the selected consumer goods firms and high
debt capacity that can be used for tax avoidance.

Var. ETR MO IO FO MO*ROA IO*ROA FO*ROA FS FA Lev

ETR 1
MO 0.06 1
IO 0.02 -0.12 1
FO 0.18 -0.25 0.32 1
MO*ROA 0.18 0.73 -0.12 -0.24 1
IO*ROA 0.13 0.09 0.59 0.10 0.08 1
FO*ROA 0.15 -0.20 0.22 0.60 -0.14 0.50 1
FS -0.00 -0.48 0.06 -0.01 -0.33 0.20 0.25 1
FA 0.14 -0.04 0.36 0.41 -0.09 0.11 0.31 -0.06 1
Lev. -0.02 -0.13 0.06 0.20 -0.19 -0.29 -0.17 -0.26 0.03 1
Source: STATA 14 Output from data Extracted from Annual Report and Accounts.
Table 3: Correlation Matrix.

From table 4.2 it can be seen that the correlation between creases ETR also increases. In respect to strength of associ-
ETR and managerial ownership is positive coefficient of ation, the association between institutional ownership and
0.0636. This indicates weak relationship. The positive co- ETR appears weak. Foreign ownership and ETR possesses
efficient implies that managerial ownership and tax avoid- positive but weak relationship at coefficient correlation of
ance are moving in the same directions. This suggest that if 0.1796. The sign of the association means that as foreign
managerial ownership increase ETR will equally increase. ownership increases, ETR increases as well. It also means
Similarly, institutional ownership has positive relationship foreign ownership and ETR are moving in same direction.
with ETR that is R of 0.020. The sign of the coefficient sug- It also implies that ownership structure does not encourage
gests that that institutional ownership and ETR are moving for tax avoidance in the sampled firms.
in the same direction that is as institutional ownership in- All the interaction effect of ROA on managerial ownership,

J Econ Managem Res 2020 Volume 1 | Issue 1 | 10 of 16

Citation: Tanko Udisifan Michael(2020) The Moderating Effect of Profitability on the Relationship between Ownership Structure and Corporate
Tax Avoidance in Nigeria Listed Consumers Goods Firms. Journal of Material Sciences & Manufacturing Research. SRC/JESMR/103

institutional ownership and foreign ownership has positive ETR decreases in the sample firm. Firm age is positively
relationship with ETR having a correlation coefficient of correlated with ETR at correlation coefficient of 0.1410. The
0.1823, 0.1281 and 0.1537 respectively. However, the rela- sign of the coefficient means that as firm age increase ETR is
tionships are weak. The positive relationship suggests that increasing as well in the same proportion. Leverage is nega-
as the moderating effect of ROA on the managerial own- tively correlated with ETR that is R of -0.0163 meaning that
ership, institutional ownership and foreign ownership in- ETR is decreasing as leverage for the selected consumers
crease ETR also increase. All the interactions are moving in goods firms is increasing. Finally, none of the independent
the same direction with ETR. However, the strength of as- variables nor controls appear highly correlated with each
sociation between the dependent variable and the indepen- other. Since there are no correlations that exceeds or is
dent variables is small with that of the interaction terms ap- equal to 0.8, this indicate absence of harmful multi-collin-
pearing to be strongest. However, as Cohen cautions small earity among the explanatory variables.
effect sizes, of which the correlation coefficient measures,
need not necessarily be trivialized in forming a basis for Regression Result
estimating the extent of relationship between variables [6].
The study used generalised least square to analysed the data
In term of control variables, the correlation matrix reveals for the study.
that firm size is negatively correlated with ETR at correlation
coefficient of -0.004 this implies that as firm size increases,
Model 1 Model 2
Variables Coefficients t-value P>/t/ Coefficients t-value P>/t/
Constant 0.7743 0.25 0.072 0.0440 0.20 0.845
MO 0.3795 1.43 0.154 -0.2441 -0.62 0.526
IO -0.0171 -0.52 0.604 -0.0576 -1.12 0.262
FO 0.0469 1.17 0.242 0.0426 0.80 0.424
FS 0.0121 0.56 0.555 0.0126 2.21 0.545
FA 0.0225 0.51 0.609 0.0460 1.04 0.383
Lev. 0.0048 0.16 0.879 0.0231 -0.5 0.473
MO*ROA 4.5231 0.60 0.027**
IO*ROA 0.2574 0.87 0.3000
FO*ROA -0.0132 0.72 0.962
R2 0.3573 0.4229
Adj. R2 0.3157 0.373
F-Ratio 34.38 35.25
Prob. F 0.0000 0.0000
R2:
Within 0.3235 0.3884
Between 0.4500 0.5422
Overall 0.3573 0.4229
Prob.>F 0.0000 0.0000

Source: STATA 14 Output from data Extracted from Annual Report and Accounts.
** Denotes significance at 5%
Table 4: Regression Results (Random Effect).

J Econ Managem Res 2020 Volume 1 | Issue 1 | 11 of 16

Citation: Tanko Udisifan Michael(2020) The Moderating Effect of Profitability on the Relationship between Ownership Structure and Corporate
Tax Avoidance in Nigeria Listed Consumers Goods Firms. Journal of Material Sciences & Manufacturing Research. SRC/JESMR/103

Table 4.3, shows that Model 1 has an R2 of 35.73% while at coefficient value of 4.5231 and statistically significant at
Model 2 has an R2 of 42.29%. The higher R2 of Model 2 in- 0.027. In contrast, the coefficient of the moderating effect of
dicates that the inclusion of the three-interaction effect has ROA on the relationship between institutional ownership
increased model explanatory power by 6.56%. While the and tax avoidance indicate a positive and insignificant re-
F-Ratio also increase from 34.38 to 35.25 with probability lationship at coefficient of 0.2574 and probability value of
value of 0.000 and 0.000 respectively. This implies that the 0.300. The results also revealed that the moderating effect of
models are fit. In the model 1 indicate that the R2 is about ROA on foreign ownership has a negative and statistically
35.73% which gives the proportion or percentage of the insignificant at coefficient of -0.0132.
total variation in the dependent variable explained by the
ownership structure of the sampled consumer goods firms Discussions
(managerial ownership, institutional ownership and foreign
ownership) variables jointly. It signifies that 35.73% of the The result of the random effect Generalised Least Square
total variation in ETR of sampled companies is caused by regression in model 1 revealed a positive relationship be-
their managerial ownership, institutional ownership and tween managerial ownership and tax avoidance of sampled
foreign ownership while the remaining 64.27% of the to- consumers goods firm at coefficient value of 0.3795 and
tal variation in ETR was caused by factors not explained by P-value of 0.154 respectively. The positive effect implies 1%
the model 1. Similarly, the model 2 indicate that the R2 is increase of managerial ownership will lead to 37.95% in-
about 0.4229 which gives the proportion of the total varia- crease of ETR. This suggest that managerial ownership do
tion in the dependent variable explained by the ownership not encourage for tax avoidance. This is line with agency
structure with their moderator of the sampled consumer theory. It indicates that the management are aligning their
goods firms (managerial ownership, institutional owner- interest with that of the shareholders. However, this result
ship foreign ownership and moderating effect of return on is actually expected because the number of shares owned
assets) variables jointly. It signifies that 42.29% of the total by managers in some of the consumers goods firms is low.
variation in ETR of sampled companies is caused by their This will not serve as an incentive to motivate managers to
managerial ownership, institutional ownership and foreign engage in tax avoidance strategy in order to reduce tax ex-
ownership and interaction effect of return on assets while penses because it will not directly benefit them much, as
the remaining 57.71% of the total variation in ETR was the quantum of their shares is small. This result is in line
caused by factors not explained by the model 2. with findings of Peter; Salawu and Adedeji; Boussaidi and
The result of the random effect Generalised Least Square Hamed who found positive relationship between manage-
regression in model 1 revealed a positive and insignificant rial ownership and tax avoidance the result disagreed with
relationship between managerial ownership and tax avoid- the findings of Salaudeen and Ejeh; Mohammed who docu-
ance of sampled consumers goods firm at coefficient val- mented negative and significant relationship between man-
ue of 0.3795 and P-value of 0.154 respectively. However, agerial ownership and tax avoidance [5-7,26,28].
it indicates that institutional ownership has negative and
insignificant relationship with ETR at coefficient value of The result on Table 4.3 also indicate that institutional own-
0.0171 and p-value of 0.604. The result revealed that foreign ership has negative and insignificant relationship with ETR
ownership has positive and insignificant influence on ETR this suggest that as institutional ownership increasing, ETR
with coefficient 0.0469 and 0.0048 and probability of 0.242 will decrease. This means institutional ownership encour-
and 0.879 respectively of the selected consumers goods firm age tax avoidance in the selected consumers firms within
listed in Nigeria. The result also shows that the control vari- the period of the study. However, this result is expected be-
ables such as firm size and leverage has positive relationship cause some of some institutional investors have their repre-
with ETR at coefficient of 0.0121 and it statistically insig- sentative on the board of the sampled firms and some of the
nificant relationship with tax avoidance at probability value institutions have concentrated ownership in some of the se-
of 0.555. The results also indicate that firm age has positive lected consumers goods firm. In this regard their represen-
relationship with ETR at coefficient of 0.0048 but it is insig- tative will like to encourage firms to carryout tax avoidance
nificant at 0.879 p-value. actions in order to increase their return on investment. This
Furthermore, the result shows on Table 4.3 for model 2 re- finding disagreed with the findings of Peter ; Khan et al who
vealed that moderating effect for return on assets on mana- revealed a positive and insignificant relationship between
gerial ownership has positive and significant impact on ETR institutional ownership and tax avoidance and agreed with
J Econ Managem Res 2020 Volume 1 | Issue 1 | 12 of 16
Citation: Tanko Udisifan Michael(2020) The Moderating Effect of Profitability on the Relationship between Ownership Structure and Corporate
Tax Avoidance in Nigeria Listed Consumers Goods Firms. Journal of Material Sciences & Manufacturing Research. SRC/JESMR/103

the findings of Yetty et al.; Andrew and Stephen who found serve as alignment between principal interests and that of
negative relationship between institutional ownership and the agent [12]. This suggest managers because managers
tax avoidance [5,31,39,40]. shareholding in consumer goods sector is not something
encourage to trigger managers to engage in tax planning
The result on Table 4.3 revealed that foreign ownership has activities which the benefit will be accrued to owners. Simi-
positive and insignificant influence on ETR of the selected larly, the coefficient of the moderating effect for ROA on the
consumers goods firm listed in Nigeria. This assert that as relationship between institutional ownership and tax avoid-
other factors remain constant one unit increase of foreign ance indicate a positive and insignificant relationship at co-
ownership will lead to increase of ETR. This result is not a efficient of 0.2574 and probability value of 0.300. This sug-
surprise because the numbers of shares owned by foreign gest that 1% increase of ROA will increase ETR by 25.74%.
investors is low. This also implies that foreign ownership if institutional ownership is increase by 87% or above. This
does not influence tax avoidance in sampled consumers implies that if consumers goods firm have a high return on
goods firms in Nigeria. This finding is consonance with assets institutional investors will not require them to strat-
the findings of Yetty et al.; Hairul et al. who document- egies for tax avoidance in order to reduce tax expenses and
ed positive and insignificant relationship between foreign increase their earnings after tax because there is enough
ownership and tax avoidance and inconsistent with Peter cash at their disposal. The results also revealed that the
who found negative and insignificant relationship between moderating effect of ROA on foreign ownership has a neg-
foreign ownership and tax avoidance [5,39]. ative and statistically insignificant at coefficient of -0.0132.
The coefficient of the moderator suggests that ceteris pari-
The result also shows that the control variables such as firm bus in listed consumers goods in Nigeria, a 1% increase on
size has positive and insignificant relationship with tax moderating effect of foreign ownership will decrease ETR
avoidance this implies that 1% increase in firms’ assets will by 1.32% if foreign ownership is increase by 27.6% or above.
lead to increase of ETR by 0.0469. Finding is consistent with This implies that foreign ownership encourages tax avoid-
Salaudeen and Ejeh; Yuniarwati and it not supported the ance when there is efficient and high return on assets and
findings of Mohammed; Salawu and Adedeji [6,26,36,38]. most listed firms in developed countries mostly benefit low
The results also indicate that firm age has positive and in- taxes in their countries this encourage foreign investors to
significant relationship with ETR. This means 1% increase take tax avoidance action in order to reduce tax expenses
of firm age with lead to 0.00225 increase of ETR. The re- and increase earnings after tax.
sult also provides that that the relationship between lever-
age and ETR is positive and insignificant at beta coefficient Conclusions
of 0.0048 and p-value of 0.879. It indicates that increase This study examined the moderating effect of profitability
of leverage will increase ETR by 0.0048. This finding sup- on the relationship between tax avoidance in listed Nige-
ported the findings of Mohammed and the findings is in- ria consumers goods firms. This based on fact the study on
consonance with the findings of Peter; Salaudeen and Ejeh ownership structure and tax avoidance with moderating ef-
[5,6,26]. fect of profitability in developing countries have not been
explored. From the findings of the study, it is concluded
Furthermore, the result shows on Table 4.3 for model 2 re- that managers do not play significant role in tax avoidance
vealed that moderating effect for return on assets on mana- in the selected consumers goods firms this because most
gerial ownership has positive and significant impact on ETR of the listed firms managers have low unit of sharehold-
at coefficient value of 4.5231 and statistically significant at ing. This will not motivate them to engage in tax avoidance
0.027. The positive coefficient of the moderator suggests strategy. This implies that if they take tax avoidance strate-
that all things being equal in consumers goods firms listed gies it will not benefit them hugely. It is also concluded that
in Nigeria, one-unit increase of ROA will increase ETR by making managers as part of a company shareholder will
4.5331% if managerial ownership is increase by 2.21%. This served as a motivation to align their interest with the inter-
implies that if consumers goods firms in Nigeria generate est of the shareholders especially if the company is making
high profitability managers who owned shares in the com- high earnings after tax. This is because it was found that
pany will not encourage for tax avoidance. The findings are managers play a significant role in facilitating increased tax
not consistent with the Jensen & Meckling agency theory avoidance among the consumers firms when there is profit.
argument that increased manager ownership in firm should This implies that there if company make profit managers

J Econ Managem Res 2020 Volume 1 | Issue 1 | 13 of 16

Citation: Tanko Udisifan Michael(2020) The Moderating Effect of Profitability on the Relationship between Ownership Structure and Corporate
Tax Avoidance in Nigeria Listed Consumers Goods Firms. Journal of Material Sciences & Manufacturing Research. SRC/JESMR/103

will like to increase their earnings on the little shares they Kano, Nigeria in Partial fulfilment of the requirement
owned in the companies. It is also concluded that institu- for the award of Phd. Degree in Accounting.
tional ownership also helps in increasing tax avoidance in 6. Mohammed AN (2017) Effect of Corporate Gover-
the selected consumers’ goods in Nigeria. This is because nance Mechanisms on Tax Avoidance in Deposit Mon-
some of the institutions have their representative in most ey Banks in Nigeria. A thesis submitted to the School of
of the firms in this regard, they will like share who protect postgraduate studies, Ahmadu Bello University, Zaria
their interest. in partial fulfillment of the requirements for the award
of a Doctorate degree in Accounting and finance.
Since having higher moderating of return on assets on mana- 7. Boussaidi A Hamed MS (2014) The impact of gover-
gerial ownership has significant relationship with tax avoid- nance mechanisms on tax aggressiveness Empirical Ev-
ance among consumers goods firms, firms should increase idence from Tunisian Context. Journal of Asian Busi-
shareholding of managers in order to align their interest ness Strategy 5: 1-12.
with the interest of owners to prevent agency problems by 8. Zhou Y (2011) Ownership structure, board characteris-
making co-owners in the firm. Tax authorities should carry tics, and tax aggressiveness. Lingnan University, Chine.
out stringent tax audit and investigate the activities firms 9. Mechek O Kubick A (2018) The relationship between
to ensure that tax avoidance of firms is within the armpit ownership concentration and performance in Czech
of tax law. If this is done it will help to know if firms are Republic. Journal of International Studies, 11: 177-186.
actually paying the actual taxes they support to paid or not. 10. Lietz, G (2013) Tax Avoidance vs Tax Aggressiveness:
In addition, since the study documented findings that are A Unifying Conceptual Framework. Working Paper.
support shareholder increase of wealth such as institutional Munster School of Business and Economics. Institute
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ment should review the provisions for tax allowances and Governance. The Journal of Finance 52: 737-783.
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report loss in some years in order take advantage of loss Managerial Behavior, Agency Costs, and Ownership
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Citation: Tanko Udisifan Michael(2020) The Moderating Effect of Profitability on the Relationship between Ownership Structure and Corporate
Tax Avoidance in Nigeria Listed Consumers Goods Firms. Journal of Material Sciences & Manufacturing Research. SRC/JESMR/103

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