19PGAC7036

BEING A THESIS PRESENTED TO THE SCHOOL OF POSTGRADUATE STUDIES, PRINCE ABUBAKAR AUDU UNIVERSITY, ANYIGBA, KOGI STATE, IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF MASTER OF SCIENCE (M.Sc.) DEGREE IN ACCOUNTING, DEPARTMENT OF ACCOUNTING, FACULTY OF MANAGEMENT SCIENCES.

NOVEMBER, 2022.

DECLARATION
I hereby declare that this Thesis is as a product of my personal effort and is the report of my research work supervised by Dr. S.A. Adediran. It has not been presented in any previous works for any degree and that works cited have been properly acknowledged and referenced accordingly.

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YAKUBU KARIM DATE
19PGAC7036

CERTIFICATION
This thesis entitled: Firm Attributes and Tax Aggressiveness in Nigerian Quoted Financial Services Companies satisfies the regulation governing the award of Master of Science (M.Sc.) Degree in Accounting of the School of Postgraduate Studies, Prince Abubakar Audu University, Anyigba, Kogi State, for its contribution to knowledge and literary presentation.

——————————————————- —————————Dr.S. A. ADEDIRAN DATE
SUPERVISOR

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Dr. FRIDAY AUDU DATE
HEAD OF DEPARTMENT

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EXTERNAL EXAMINER DATE

—————————————————- ————————— Prof. W. S. ONOGU DATE
Dean, School of Postgraduate Studies.

Dedication
I dedicate my research project to Almighty Allah and my beloved Wife, Daughter and Son

ACKNOWLEDGEMENTS
My gratitude goes to Almighty Allah for seeing me through this program and for his grace upon my life and for his strength to carry out this project work. .
I also say a big thanks to my wonderful supervisor Dr. S. A. Adediran who in spite of his tight schedule, was able to make correction in my project to give it a wonderful quality.
I must register my profound gratitude to the Head of Department; Dr Friday Audu who also contributed to shaping this work especially at defence session, Prof. S. R. Abdullahi is specially acknowledged for his fatherly role in my life and I pray for God to bless him. Dr. Adejoh Edogbanya is acknowledged for his readiness to clarify any conflicting issues he came across in the course of this project. Other Lecturers who helped to make the programme worthwhile are Dr. Sunday Simon, Dr. Moses Elaigwu, Dr. James Ugwu and Dr. Daniel Akubo. I remain grateful to them all.
A special thanks go to my late parents, Brothers and Sister, may almighty Allah forgive their shortcomings. My gratitude goes to my lovely wife Mrs Yakubu Hauwa, My sweet daughter Yakubu Fasiha and my lovely son Yakubu Faizullahi for their care. I equally thank my friends and colleague who through their goodwill contributed immensely towards the success of this programme. God bless them all.

TABLE OF CONTENTS
Title Page 1
Declaration 2
Certification 3
Dedication 4
Acknowledgements 5
Abstract 8
CHAPTER ONE: INTRODUCTION
1.1 Background to the Study 9
1.2 Statement of problem 11
1.3 Objectives of the Study 13
1.4 Research Hypotheses 14
1.5 Scope of the Study 14
1.6 Significance of the Study 15
1.7 Limitation of the Study 15
CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.1 Conceptual Framework of the Study 16
2.1.2Concept of Firm Attributes 16
2.1.2 Firm Size and Tax Aggressiveness 17
2.1.3 Firm Age and Tax Aggressiveness 19
2.1.4 Firm Profitability and Tax Aggressiveness 19
2.1.5 Firm Complexity and Tax Aggressiveness 21
2.1.6 Concept of Tax Aggressiveness 22
2.1.7 Book-Tax Difference 24
2.2 Theoretical Review 27
2.3 Empirical Review 29
2.4 Gap in Literature 51
CHAPTER THREE: METHODOLOGY
3.1 Research Design 43
3.2 Population of the Study 43
3.3 Sample Size 43
3.4 Sampling Techniques 43
3.5 Sources of Data 43
3.6 Method of Data Analysis 44
3.7 Model Specification 44
3.8 Operationalisation of the variables 45
CHAPTER FOUR: DATA PRESENTATION AND ANALYSIS
4.1 Data Presentation 47
4.2 Data Analysis 47
4.3 Test of Hypotheses 54
4.4 Discussion of findings 55
4.5 Summary of Findings 57
CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS
5.1 Summary 58
5.2 Conclusion 59
5.3 Recommendations 60
5.4 Contribution for further study 61
5.5 Suggestion for Future Study 61
References 63
Appendices

Abstract
The study examines the relationship between different firm attributes on tax aggressiveness in Nigeria. The firm attributes, as independent variable, was represented by firm size, firm age, firm profitability and firm complexity; while the dependent variable (tax aggressiveness) was measured using the book-tax differences (BTD). The sample consists of the entire forty eight (48)financial services firms of the Nigerian Exchange Group for the period of ten financial years (2012-2021). Panel data were extracted from the financial statements of the sampled companies for the 10-year period covered by the study. The data analysis was performed using STATA 15 econometric software and the techniques employed include: descriptive statistics, correlation matrix and panel regression technique. The fixed effect panel estimation technique was found suited for the data based on the outcome of Hausman specification test. The outcome of the hypotheses tests showed that the variables of firm size and firm complexity (SUBS) have significant positive effect on tax aggressiveness, while, profitability has significant negative effect on tax aggressiveness. The result also reveals that, firm age has insignificant negative effect on tax aggressiveness of the financial services firms examined during the period covered by the study. The study recommends, among others, that financial firms in Nigeria should ensure they have enough assets and diversify their business for a more tax aggressive pursuit.

CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
Taxes are compulsory levies imposed by the relevant tax authorities on the income and profit of individuals and corporate entities from which infrastructure are provided and maintained, as well as provision of public amenities to the society. Government requires tax revenue to augment its public expenditures and in the provision of public goods (Osho et al.,2020). One of the underlying features of tax, according to Olaoye and Ekundayo (2019), is that, it is a mandatory payment enforced by government for which no immediate gain is received in return, at least in a short-run. Thus, nobody pays tax with a smile because taxpayers instantly receive nothing identifiable in return for their contributions. This makes tax payment quite unattractive to taxpayers. As a result, not every national government, especially in developing countries, are able to effectively achieve optimal tax compliance level (Chytis et al.,2018). In many cases, a large proportion of the informal sector of the economy escapes the tax net entirely (Oladipupo & Obazee, 2016), while companies in the formal sector try to avoid taxes by engaging in tax aggressive and avoidance strategies in order to minimise their tax burden (Hutchens et al.,2019).
Corporate tax aggressiveness has been described “as wide range of operations with the sole aim of reducing the total tax debt or tax liability of an entity” (Martinez et al., 2019, p.4). Chen et al. (2010) defined it as the manipulation of the financial statement by corporate entities in order to lower their taxable income. Martinez and Rodrigues (2019), in their own view, stated that tax aggressive companies are those that adopt adequate tax avoidance mechanisms in order to reduce income tax expenses. For organisations, taxes are considered as a significant cost because it removes part of their earnings without apparent and immediate compensation, while tax avoidance increases net cash flows, which can be used to boost corporate investment, fulfil debt obligations, or be distributed to shareholders in the form of dividends or share buybacks (Jihene & Moez, 2019). However, government consider tax avoidance as a major problem because it threatens the economy of any nation. For this reason, studies on tax aggressiveness and its possible determinants have continued to attract massive research interest among academic researchers (Chytis et al.,2018).
Most prior studies (Onyali & Okafor, 2018; Salihu et al.,2014) opine that corporate tax aggressiveness is among the most severe tax compliance issue threatening the revenue generation of different nations around the world, howbeit in different magnitudes. Thus, every nation has several anti–avoidance tax laws geared towards discouraging tax aggressiveness among corporations. For instance, the Nigeria government, through the Federal Inland Revenue Service (FIRS), initiated and implemented the tax amnesty programme between 2017 and 2018 which offered a 12-month window of opportunity for corporate taxpayers to regularise their tax liabilities. These are all efforts towards widening the existing tax nets. However, available indices suggest that, despite Nigeria having a corporate tax of 30%, the tax-to-GDP ratio as at 2018 remained at 6.1% (Maiye & Isiadinso, 2018). This aligns with the position of Onyali and Okafor (2018) that despite governments’ efforts, companies do engage in tax aggressive policies by exploiting available loopholes in the tax law through the help of tax experts.
There are several reasons to be concerned about the tax aggressive behaviours of the Nigerian financial companies as well as their possible determinants. Among them is the fact that the economy of every nation largely depends on a robust and effective banking system which serves as a vehicle for funds allocation among the various subsectors of the economy (Boateng, 2018). Thus, sustaining the financial health of financial companies (including banks and other financial institutions) is considered paramount just as governments desire to maximise their full tax potentials. Previous studies (Ilaboya et al.,2016; Martinez & Rodrigues, 2019; Ogbeide, 2017; Zemzem & Ftouhi, 2013) suggest that varying firm attributes (such as firm size, firm age, profitability, auditor type, firm complexity and ownership structure) play important roles in determining firms tax management strategies as well as the level of firms’ tax aggressiveness. However, there is lack of convergence amongst prior studies that firm attributes are the major determinants of tax aggressiveness. This study is thus incentivised to re-examine the tax aggressive behaviours of Nigerian financial firms with a view of expanding the existing understanding on the determinants of tax aggressiveness from the firm-specific attributes perspective.
1.2. Statement of Problem
Economically, available indices suggest that Nigeria does not generate much revenue from income taxes as they should. For example, according to the Corporate Affairs Commission (CAC), as reported in McCulloch et al. (2020), out of the estimated 70 million economically active individuals in Nigeria, only 19 million are tax registered as PAYE (Pay as You Earn). Similarly, out of about 30 million registered corporate organisations, only 2.5 million tax-registered corporate bodies (just above 8%) are captured on the CAC list, leaving the rest out of the tax net(Awodipe, 2018). Closing these wide gaps between the taxable income group and the percentage of actual collected taxes poses a major challenge to the government. Government usually consider tax offenses as highly grievous, although tax aggressiveness is classified as tax avoidance practices and are viewed as legal in most jurisdictions. Etter-Phoya et al.(2019) posit that some countries require taxpayers to report tax avoidance schemes they have used and tax advisers to report tax avoidance schemes they have marketed or sold. No African country, including Nigeria, (except South Africa) requires taxpayers or advisers to report uncertain tax positions for which reserves have been created in annual company accounts (Etter-Phoya et al, 2019). Thus, in most nations that do not largely depend on natural resources in financing their budget, “tax is considered inevitable just like death” (Chytis et al, 2018).Adediran et al. (2013) assert that the Nigeria tax system has failed in the area of its administration, as personal and company income tax administration in Nigeria today do not measure to the appropriate standard.

A look at the literature shows the level of tax aggressiveness varies across companies because each company has peculiar characteristics. As a result, a handful of previous researches have examined the determinants of tax aggressiveness from the dimension of firm-specific attributes using different proxies. On the studies by Nigerian authors for example, Ogbeide (2017) used audit fees, firm size, leverage and interest charges as proxies for firm characteristics, while Ilaboya et al (2016) used firm size, profitability (ROA), leverage, ownership concentration and capital intensity. Atu et al.(2018) used firm size, leverage, liquidity and profitability, while Salawu and Adedeji (2017) used quality of external auditor, ownership concentration, firm value, leverage, profitability, size, growth opportunities and capital intensity as both firm characteristics and corporate governance variables. Salaudeen and Eze (2018) used firm size, leverage, profitability, capital intensity, inventory intensity, labour intensity and auditor type. Some others used variables outside the firm attributes, such as Oyeleke et al.(2016) which used female directors and Onyali and Okafor (2018) which studied the board of director characteristics.
A look at some of the findings of the previous Nigerian studies shows some level of inconsistencies. For example, while Ogbeide (2017) and Salaudeen and Eze (2018) found all the firm attributes they studied as significant determinants of tax aggressiveness; Ilaboya et al (2016), Salawu and Adedeji (2018), Onyali and Okafor (2018) and Atu et al (2018) found that firm size, leverage and firm profitability (respectively) are all insignificant in explaining variations in tax aggressiveness using varying samples of companies in Nigeria. These observed conflicting evidences in prior studies are indications that the issues relating to firm attributes’ influence on tax aggressiveness is far from being settled empirically; hence, the need for further studies in a bid to identifying the possible reasons for the lack of convergence in prior studies.
To this effect, one major discoverable reason for lack of convergence in prior studies is the measure of tax aggressiveness adopted in those studies. Annuar et al.(2014) categorised the tax aggressive measures into two groups: the book-tax differences (i.e. gap between book and taxable income) and effective tax-based (i.e. ratio of tax to income) measures. Majority, if not all, of the existing studies by Nigerian authors used the Generally Accepted Accounting Principles (GAAP) Effective Tax Rate (ETR) as proxy for tax aggressiveness and did not consider other measures of tax aggressiveness. Given the heterogeneities that exist among listed companies and the varied opportunities for tax planning across different subsectors, it is unlikely that using a single pattern of Effective Tax Rate(ETR) measure would produce a result different from those reviewed. Despite the fact that all the tax aggressive measures have differing limitations, this study intends to adopt the Total Book Tax Difference (BTD) measure of tax aggressiveness in a bid to reconciling the observed conflicts in prior studies using a sample of Nigerian quoted financial services companies.
1.3 Objectives of the Study
The broad objective of this study is to determine the relationship between firm attributes and tax aggressiveness in Nigerian listed financial companies. However, the specific objectives are to:

1. evaluate the effect of firm size on tax aggressiveness in Nigerian quoted financial services companies.;
2. ascertain how firm age affects tax aggressiveness in Nigerian quoted financial services companies.;
3. identify the effect of firm profitability on tax aggressiveness in Nigerian quoted financial services companies.; and
4. analyse how firm complexity affects the level of tax aggressiveness among Nigerian quoted financial services companies.
   1.4 Research Hypotheses
   The following null hypotheses were formulated and were tested in the course of this study:
   HO1: Firm size has no significant effect on tax aggressiveness of Nigerian quoted financial services companies..
   HO2: Firm age has no significant effect on tax aggressiveness of Nigerian quoted financial services companies..
   HO3: Firm profitability has no significant effect on tax aggressiveness of Nigerian quoted financial services companies.
   HO4: Firm complexity has no significant effect on and tax aggressiveness of Nigerian quoted financial services companies.
   1.5 Scope of the Study
   The scope of the study is limited to all the financial companies listed on the Nigerian Exchange Group (NGX) as at year ended 2021, Nigeria has a total of forty-eight (48) companies listed under the financial sector of the Exchange. This number comprises thirteen (13) Commercial Banks and thirty-seven (35) other financial institutions (including Insurance Firms, Mortgage Banks, Micro-Finance Banks and one Islamic Bank). The study covers a ten year period starting from 2012 – 2021. The choice of year 2012 as the start year of the study is because it marked the year the Nigerian listed companies commenced reporting using the IFRS, while year 2021 represents the most current year for data availability of data.
   1.6 Significance of the Study
   The outcome of this study was beneficial to:
   i. tax policymakers to understand the firm-specific factors that influences the level of tax aggressiveness which could possibly lead to tax evasion which is detrimental to a country’s revenue base and its public spending.
   ii. users of financial statement and tax administrators so as to improve their level of awareness on the extent of tax aggressiveness by financial institutions in Nigeria.
   iii. academic scholars, researchers and students in the field of finance, taxation, business and accounting in their bid to further their knowledge on issues of tax planning which simply refers to the process and scheme by which tax payers arrange their affairs and businesses in such a manner as to attract lowest possible tax rates under applicable tax laws. The study also bridges the existing knowledge gap as this the study will add to existing literature on the use of dual tax aggressive measures in a model comparison studies.
   1.7 Limitation of the Study
   This study is limited to the financial services companies in Nigeria and so the findings as reported here does not apply to the non-financial services companies operating even within the same economy. The data for the study were extracted from the financial statements of the sampled companies for the period of ten year from 2012-2021, any attempt to generalise the findings on period prior to or after the particular ten years will be a mis-application and therefore wrong.

CHAPTER TWO
REVIEWOF RELATED LITERATURE
2.1 Conceptual Framework of the Study
The conceptual framework of this study comprises the independent variables namely: firm size, firm age, firm profitability, and firm complexity; and the dependent variable of tax aggressiveness.

Figure 2.1: The Framework of the Study
Source: Adapted from Ilaboya et al. (2016).

2.1.1 Concept of Firm Attributes
These are variety of variables that characterises a company and affects corporate decisions both internally and externally and can therefore contribute towards determining firms’ tax management strategy as well as the corporate tax aggressive behaviours (Ilaboya et al, 2016; Martinez & Rodrigues, 2019; Ogbeide, 2017; Zemzem & Ftouhi, 2013). For the purpose of this study, the focus is on firm size, age, profitability and complexity.

2.1.2 Firm Size and Tax Aggressiveness
In the context of this study, and in line with literature, firm size represents the magnitude of the firm in terms of how large or small the firm is. Firms are usually classified as either large or small firms based on their total assets or number of employees as the case may be. It is measured in most studies using the natural log of total assets (Ilaboya et al., 2016 and Ogbeide, 2017). Firm size approximates the degree of capital market frictions, where transactions costs are relatively lower for larger firms (Fischer, et al., 1989). Interest groups and policy makers have long been drawing on average effective tax rates (ETRs) to conveniently support their arguments in tax reform debates and discussions on corporate tax provisions (Callihan, 1994). This focus of the debate on corporate size led to a stream of research investigating whether there is a systematic relation between firm size and annual average ETRs.

Empirical studies showed different conclusion related to the relationship between effective tax rate and company size. Several researchers found positive relation between ETR-based avoidance proxies and company size (Minnick & Noga, 2010; Vieira, 2013; Kraft, 2014), which is consistent with the political cost hypothesis, meaning that large firms are characterized by higher visibility and thus subject to greater regulatory activity (Watts & Zimmerman 1986). According to this theory, effective tax rates are a proxy for political cost for the reason that taxes paid are a mean of wealth transfer from firms to other social groups. Effective tax rate is also a proxy for firms’ success; therefore, if larger firms are more successful than smaller firms, the larger firms would 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. Another competing theory argues that since larger firms have more power and more resources to manage taxes it is expected that they have lower ETRs. Using a non-ETR measure of tax avoidance, Wilson (2009) similarly finds a positive relation between tax shelter participation (as a proxy for particularly aggressive tax planning) and firm size. Rego (2003) finds that larger firms have higher effective tax rates.
Meanwhile, several studies conclude that ETR has negative relation with company size (Derashid & Zhang, 2003; Richardson & Lanis, 2007). This is in line with the political power or clout theory, assuming that large firms have greater resources for lobbying and more sophisticated tax planning activities (Siegfried, 2012, Porcano 2006). Others find no association between ETRs and firm size (Gupta & Newberry 2007; Mills et al., 2008). Gupta and Newberry (2007) stated that inconsistencies between ETR and company size are sample specific (related to sample selection), and it won’t happen to companies with longer histories. This means, if the sample used is companies with longer histories the result would show there are no significant relation between ETR with company size. Meanwhile, if the sample used is the companies with shorter histories the result would show there are significant relation (either negative or positive) between ETR and company size. Research in Indonesia on the relation between ETR and company size by Soepriyanto (2008) concluded that ETR has no significant relationship with company size.
Richardson and Lanis (2007) tested the association between firm size and ETRs in an Australian setting. For a sample of publicly-listed firms over the period from 1997-2003, the authors find results in line with the political power theory and posit a significant negative association between firm size, measured as the natural logarithm of total assets (at book value), and ETRs. However, Richardson and Lanis (2007) pointed to limitations of their research design in terms of data unavailability: there is no control for foreign operations and ownership structures and it cannot be said whether results would also apply to non-listed firms as there are no such firms included in the sample. Most recent studies confirm the existence of a positive relationship between firm size and the effective tax rate (Richardson et al., 2013; Desai & Dharmapala, 2006). Several authors consider effective tax rate as the most relevant measure of the ability of the company to optimize its tax burden and invariably avoid tax (Chadefaux & Rossignol, 2006).
2.1.3 Firm Age and Tax Aggressiveness
Firm age represents the age of the bank in terms of the difference between their year of incorporation and the current year. Generally, theory postulates a difference between old and young firms concerning their probability to alter contractual outcomes that depend on accounting numbers. Political cost theory can be used to explain the association between the age of company and tax avoidance. Desai and Dharmapala (2006) argue that the older the company, the broader its business and the higher its reputational risk. This is so because older firms are usually larger and tend to hold more grounds than newer firms and as such, will be exposed to more political scrutiny. Older firms tend to mitigate risk and choose actions that do not trigger higher risk. Previous research in the field of tax aggressiveness practices. Zemzem and Ftouhi (2013) show contrasting views concerning age as one of the company attributes which makes it open for further evaluation in this study.

2.1.4 Firm Profitability and Tax Aggressiveness
Profitability is the degree to which the company makes profit or financial gains from their economic activities. Profitability is commonly measured as either return on assets or return on equity. Literature suggests that firms’ profitability is an intuitive indicator with capacity to influence effective tax rate. For Dunbar et al. (2010), when profitability is measured based on pre-tax income it is expected that more profitable firms have higher earnings and, consequently, pay more taxes. This point of view is the one most evident in the literature (Ribeiro et al., 2015).An early study by Gupta and Newberry (2007) finds that tax avoidance is associated with firm profitability. Gupta and Newberry (2007) were among the first to investigate the association between GAAP ETRs and multiple firm-level characteristics. Multivariate results derived from micro-level panel data show that ETRs are significantly associated with a number of other firm characteristics besides size such as firm profitability. Profitability is commonly measured as either return on assets or cash flow from operations.

The basic argument is that more profitable firms arguably have a greater incentive to reduce their tax burden as compared to firms that are less profitable (Dunbar et al, 2010).More profitable firms generally pay higher taxes. On the other hand, one could argue that more profitable firms have greater incentives to engage in tax avoidance due to the greater potential savings (Rego 2003; Frank et al. 2009; McGuire et al. 2012). Manzon and Plesko (2002) argue that more profitable firms can make better use of tax deductions, exemptions, and credits. Lisowsky (2010) showed that tax avoidance is positively associated with performance. Rego (2003) also asserted that firms with higher pre-tax income have lower effective tax rates, ceteris paribus. Profitable companies may have a greater incentive than loss companies to engage in tax planning (Rego, 2003), which should lead to lower effective rates. A positive association between firm profitability and ETR was found by Richardson and Lanis (2007), Minick and Noga (2010) and Armstrong et al. (2012). Derashid and Zhang (2003) and Kraft (2014) document a negative influence of firms’ profitability on ETRs.
Dhaliwal et al. (2011) assert that companies with net operating losses (NOL) have little incentive to implement tax planning strategies that reduce effective rates and subsequently find a positive association between the existence of an NOL and effective tax rates. This relationship, however, can be complicated by a firm’s position with regard to valuation allowances and current taxes payable. These complications may help to explain a negative association between NOLs and ETRs that is evidenced in other prior research (Dyreng & Lindsey, 2009; Higgins, Omer, & Phillips, 2011; Rego, 2003). Phillips (2003) and Dhaliwal et al. (2011) find a negative association between Book (i.e. GAAP) ETR and ROA, which supports this assertion. However, Dyreng et al. (2010) and Robinson et al. (2010) find that ROA is positively related to Book ETR.
2.1.5 Firm Complexity and Tax Aggressiveness
According to Wahba and Elsayed (2010), firm complexity refers to what extent the firms’ operations and activities are diversified and interrelated. It is among the firm-specific attributes that usually influence several organisational outcomes. In the context of this study, the premise of existing literature (Chen et al., 2010; Chen et al.,2019; Pratama, 2017) is that the more complex the firm is, the greater the tax burden should likely be. In line with the economies of scale, the potential influencing effect of firm complexity on tax aggressiveness is more likely to be valid since complex firms are characterised by larger subsidiaries and business segments, especially conglomerates or cross-border financial institutions with foreign affiliations.

Researchers like Barinov et al. (2016) suggest that earnings reporting behaviours of conglomerates and single-segment firms differ significantly, and this most likely transcends to tax aggressive behaviours since there is likelihood that complex firms have higher tax burden. Markarian and Parbonetti (2007) classified firm complexity into two: internal and external complexity. Internal complexity refers to the sophistication of internal work processes, production technologies, and the work processes of employees, while external complexity relates to the external competitive structure (proxied by the number of business subsidiaries and geographic segments). The latter category is the focus of this study since it is practically observable that majority of the financial institutions in Nigeria have multiple subsidiaries.

2.1.6. Concept of Tax Aggressiveness
The term corporate tax aggressiveness lacks universal definition as it might connote “different thing to different people” (Hanlon & Heitzman, 2010). Given this, they have been several definitions of corporate tax aggressiveness put forward by researchers in recent times. Hanlon and Heitzman (2010) describe tax aggressiveness as a continuum of tax planning strategies where something like municipal bond investments are at one end (lower explicit tax, perfectly legal), then terms such as ‘noncompliance’, ‘evasion’, aggressiveness’, and ‘sheltering’ would be closer to the other end of the continuum. The practice of tax aggressiveness along this continuum sets up an interesting and relevant agency dilemma (Lietz, 2013). Research shows that some level of tax aggressiveness avoidance is desirable. If a firm pays less tax through legitimate tax saving strategies, shareholders benefit as will even the management when incentives are properly aligned (Slemrod, 2004). Thus, the terms such as tax management; tax planning; tax sheltering; and tax aggressiveness are interchangeably used with tax avoidance in the literature (Lanis & Richardson, 2012; Tang & Firth, 2011).

Rego (2003) defines tax aggressiveness as a reduction of the present value of tax payments. Thus in a general sense tax aggressiveness is a strategy of minimizing taxes. Effective tax avoidance seeks to minimize taxes but only to the extent that such planning maximizes after-tax returns (Scholes et al., 2009). In a broad sense, tax aggressiveness is a term that suggests a firm is avoiding taxes by all means, which may or may not include tax sheltering or tax evasion (Dyreng et al., 2008). According to Kirchler and Maciejovsky (2001), tax avoidance as a concept is simply an attempt to reduce tax payments by legal means, for instance by exploiting tax-loopholes
Tax aggressiveness is generally the legal exploitation of the tax system to one’s advantage to attempt to reduce the amount of tax that is payable by means that are within the law while making a full disclosure of the material information to the tax authorities (Desai & Dharmapala, 2009). Desai and Dharmapala (2009) also defined tax aggressiveness as a transfer of value from the state to shareholders, asserting that tax avoidance strategies are designed by creating information asymmetry between tax authorities and the firm so as to prevent the detection from tax authorities. Wang (2010) went further to define tax aggressiveness as representing a continuum of tax planning strategies, encompassing activities that are perfectly legal and more aggressive transactions that fall into the grey area (for example, abusive tax shelters). According to Pasternak and Rico (2008), tax aggressiveness is the legal utilization of the tax regime to one’s own advantage, to reduce the amount of tax that is payable by means that are within the law. Annuar et al. (2014) simply defined corporate tax aggressiveness as a reduction in the explicit corporate tax liabilities.
Guo (2014) considers tax aggressiveness as any activity that reduces tax paid given the level of earnings. Tax avoidance includes any transaction that has any effect on the firm’s tax burden. This includes real activities which have tax benefits, lobbying activities aimed at reducing a firm’s tax burden, and activities undertaken solely for the purpose of avoiding taxes. Mughal and Akram (2012) also opined that tax avoidance can be defined as the activity of tax payers in which they try to find out different ways to lessen or eliminate his tax liability and do not show their legal income without violating law.
In summary, this tax aggressiveness is simply said to take place within the legal context of the tax system that is, individuals or firms take advantage of the tax code and exploit loopholes, i.e. engage in activities that are legal but run counter to the purpose of the tax law. Usually, tax avoidance encompasses special legal activities with the sole purpose to reduce tax liabilities. Thus, in the context of this study, this researcher defined tax aggressiveness as companies’ efforts to minimise their tax liabilities by exploiting the loop holes in accounting principles, especially through the engagement of tax experts. An example for tax aggressiveness is strategic tax planning where financial affairs are arranged in order to minimize tax liabilities by using tax deductions and taking advantage of tax credits.
Due to its nature, tax aggressiveness is extremely difficult to measure (Desai & Dharmapala, 2009). There have been several measures of corporate tax aggressiveness used in the prior literature. These measures are mostly based of the estimates from the financial statements and could be classified into three groups. The first group includes those measures that consider the multitude of the gap between book and taxable income. These comprise of total book-tax gap; residual book-tax gap and tax-effect book-tax gap. The second group has to do with those constructs that measure the proportional amount of taxes to business income. They include the effective tax rates (this comes in several variants like accounting/GAAP ETR; current ETR; cash ETR; long-run cash ETR; ETR differential; ratio of income tax expense to operating cash flow; and ratio of cash taxes paid to operating cash flow). The third group involves other measures such as discretionary permanent differences. Considering the ETR measures have been severally used by prior studies, this study will employ the Book Tax Difference (BTD).

2.1.7 Book-Tax Difference
According to Rego (2003), tax aggressive activities can create book-tax differences, which are either temporary or permanent differences between a company’s financial accounting and taxable income. Thus, the numerator is based on taxable income and the denominator is based on financial accounting income to accommodate book-tax differences. The book-tax difference (BTD) is also used as a proxy for the measurement of tax avoidance activity. It focuses on the magnitude of the difference between the accounting income and taxable income (book-tax gap). Although the causes of BTG are many and usually classified as permanent and temporary differences, the size of the gap suggests the presence of tax avoidance practices (Kim et al., 2011). To buttress the argument, Mills (1998) find a positive relationship between BTG and larger audit adjustment and tax audit among US firms. There are two commonly used measures of BTG to capture tax avoidance; these are total book-tax gap and residual book-tax gap. There are a number of studies that suggest book-tax differences can be used as a signal of tax planning activity (Badertscher et al., 2010). The book-tax difference was developed by Manzon and Plesko (2002) and followed by Desai and Dharmapala (2009). Book-tax differences are differences between income reported to capital markets and tax authorities. The literature on taxation e.g. on tax avoidance, tax planning and tax sheltering holds the view that the positive book-tax differences and a low effective tax rates reflect the behavior of tax avoidance (Plesko, 2004).
Desai (2003) posits that the growing difference between book and taxable income in the US during the 1990’s was caused by increased levels of tax sheltering. In addition, Wilson (2009) finds that book-tax differences are positively associated with actual cases of tax sheltering. Despite evidence that large positive book-tax differences are associated with tax avoidance activity, this measure has limitations. Manzon and Plesko (2002) and Hanlon (2003) identify firm specific characteristics associated with book-tax differences that are not necessarily reflective of corporate tax planning. Additionally, results in Phillips et al. (2003) and Hanlon (2005) suggest that temporary book-tax differences are associated with earnings management activities. To the extent that earnings management and innate firm characteristics unrelated to tax avoidance are the primary determinants of book-tax differences.
Manzon and Plesko (2002) developed a model for measuring total BTG and Chen et al. (2010) use the model for the measurements of tax aggressiveness among US companies. As total BTG may also be affected by the firm’s earning management practices, Desai and Dharmapala (2006) try to capture the unexplained portion of the total BTG, otherwise known as “abnormal total BTG” (Hanlon & Heitzman, 2010), and thus develop the residual BTG. This measure has been used to measure tax avoidance in Chen et al. (2010); Desai and Dharmapala (2009); and Kim et al. (2011). Another form of BTG is developed in Tang and Firth (2011). The measure is termed Tax-effect BTG. It is argued that commonly used BTG is an income-effect BTG, and it uses the general company income tax rate. As for tax-effect BTG, it is based on the difference between income tax expense and current tax expenses, and thus relevant in a business setting where firms are subjected to different tax rates.
The general equation of corporate tax avoidance components using book-tax difference (BTD) is stated below;
BTDit = FIit – TIit
BTDit – book-tax difference for firm i in year t;
FIit – financial income;
TIit – taxable income.
Financial income is the income reported to capital markets, and it is the firm`s pre – tax income given in the income statement. Taxable income is not disclosed in the financial statements.
Table 1 presents the summary of each of the proxies with citations of their original sources.
Table 2.1: Summary of the Tax Aggressiveness Measures adopted
Measure Definition/formula Description Original source(s)
Book Tax Different (BTD) Commercial profit-Profit Fiscal/Total Asset The total difference between Pre‐tax book income and taxable income scaled by total assets. The bigger the BTD, the bigger the company is tax aggressiveness. Mills et al (1998), Prawira (2017)
Source: Researcher’s compilation (2020)

2.2Theoretical Review
2.2.1 Agency Theory
Agency theory was propounded by Jensen and Meckling (1976). Agency theory is used in explaining the agency relationship between the managers (as agents) and the shareholders (as principals) – where the conflict of interest is bound to exist which may lead to the former acting to maximise their own interests other than those of the latter, thereby creating agency problem. According to the agency-view of tax avoidance, conflicts between firm owners and its management may arise because managers who are generally expected to make tax-effective decisions may in fact behave opportunistically and divert corporate wealth for their private benefit (Jensen & Meckling 1976; Desai & Dharmapala, 2006).

Slemrod (2004) and Chen and Chu (2005) were among the first to view corporate tax avoidance within an agency framework. Tax avoidance is related to agency problem that is, tax avoidance is perceived as a tool of the creation a shield for managerial opportunism and diversion of rents. According to this view, theoretically, corporate tax avoidance can create a shield for expedience activities of managers and diversion of rents (Desai & Dharmapala, 2006). Desai and Dharmapala (2006) suggest an agency-view on tax avoidance, stating that agency costs in form of managerial rent extraction may result from a complimentary relationship between tax avoidance and managerial diversion. Self-interested managers might use tax avoidance strategies to mask the opportunistic extraction of rents (Desai et al., 2007).
2.2.2 Political Economy Theory
The political economy theory which was propounded by Buhr (1998) posits that accounting systems act as mechanisms used to create, distribute and mystify power. This theory is based upon economic theories of self-interest. The emergence of pressure groups creates a threat to companies who may face increased government intervention in the form of regulatory actions which then create political costs (Uwuigbe, 2011). Companies are therefore predicted to counter possible political costs by resorting to government lobbying and providing social responsibility disclosures (Watts &Zimmerman, 1978). Deegan (2000) describes the classical political economy theory as that which tends to perceives accounting reports and disclosures as a means of maintaining the favoured position of those who control scarce resources (capital), and as a means of undermining the position of those without scarce capital. It focuses on the structural conflicts within society.
The usefulness of political economy theories is that they do not focus solely on the economic self-interest and wealth-maximization of the individual or corporation, instead, they consider the political, social and institutional framework within which the economic activities take place (Gray et al., 1995).
2.2.3 Adopted Theory for the Study (Political Economy Theory)
This study was anchored on the political economy theory. This theory is relevant to this study because firms being regulated by government on tax issues are in the dilemma of compliance with stiff tax regulations imposed on them not without a cost and meeting the economic bottom line of firms which is the primary objective of corporate firms with a view to maximize shareholders’ wealth. The economic self-interest of managers of firms is perceived as the reason why they engage in tax aggressiveness in order to achieve the firm’s underlining economic goals.

2.3Empirical Review
This sub-section presents a systematic review of prior related studies on determinants of tax aggressiveness from both foreign and Nigerian authors. The researcher arranged the review synchronically (new to old) especially those that focused on company-related characteristics.

Jaffar et al.(2021) studied the determinants of tax aggressiveness using company characteristics including company size, profitability, capital incentive, leverage, financial distress and ethnicity. They sampled a total of 105 companies listed in Bursa Malaysia from 2014 to 2018 and employed the balanced pooled OLS regression technique. They found that only profitability and financial distress are significant determinants of tax aggressiveness, while the other variables like (company size, capital intensity, inventory intensity, leverage, and ethnicity) were not statistically significant in explaining the variances in tax aggressiveness in Malaysia. Although they did not proffer any policy recommendation, they acknowledged that they used only a small sample size in their analysis implying that their results cannot be generalized to the overall population of companies in Malaysia, specifically to the larger size of firms. The study recommended that covering both small and larger size of firms in future research may yield a better result on the relationships.

Kusbandiyahet al. (2021) examined determinants of tax avoidance using some corporate governance variables that can as well proxy for company characteristics, for example ownership structure. They sampled a total of 28 companies for 6yrs (2012-2017) and used panel regression method. Their result showed that institutional foreign ownership, family ownership and independent directors did not significantly influence tax avoidance, while the CG-score Index has a significant effect on tax avoidance among companies listed in Bursa Malaysia. They did not provide any policy recommendation, save for suggestion for further studies in which they recommend the use of permanent BTD and temporary BTD as tax avoidance measures,
Akintoye et al.(2020) examined the impact of tax planning strategies on the profit performance of listed manufacturing companies in Nigeria. The used the Taro Yamani formula in arriving at a sample of 46 manufacturing firms from 2008 to 2017. The made of use of descriptive and inferential statistics in analysing the secondary data. Their result showed that there is no significant effect of tax planning on the profitability (proxied using ROA) of manufacturing firms in Nigeria. The study recommended that tax managers and finance officers should reduce thin capitalization and capital intensity to balance the source of income of manufacturing firms. However, their study focused on the manufacturing firms which is distinctive to the direction of this study – with focus on the financial sector which has stricter regulatory monitoring and large stakeholder’s followership due to the financial intermediary roles they play in the economy.
Yahaya and Yusuf (2020) examined the impact of firm characteristics on tax aggressiveness in Nigerian listed Insurance firms. The focused on firm size, firm age, profitability and leverage as independent variables and measures of firm characteristics. Their sample consists of twenty (20) insurance firms quoted on the Nigerian Stock Exchange from 2010 to 2018. They analysed using the two-step system GMM panel regression model and found that firm size and leverage affect tax aggressiveness positively while firm age and profitability assert negative significant impacts on tax aggressiveness. The study recommended that firm size should be formulated in line with the regulatory provisions. However, their study focused on only the Insurance companies which are just a sub-set of the entire financial sector which is the focus of this study. Hence, it is expected that the outcome of this study will be more generalizable than theirs.
Onatuyeh and Odu (2019) examined the impact of corporate characteristics on tax aggressiveness in Nigeria using secondary data of 49 listed manufacturing companies from 2011-2016. They used panel data regression technique and found that board size and board independence exert negative and significant impacts on tax aggressiveness, while board gender exerts no significant effects on the level of tax aggressiveness. They recommend that listed manufacturing firms in Nigeria should ensure more women are included in their boards of directors. One key con of their study is that their recommendation is at variance with their result. For example, they found that gender diversity has no significant effect on tax aggressiveness and went ahead and recommended for greater women inclusion in the board.
Ifurueze et al. (2018) investigated the effect of corporate tax aggressiveness on firm growth in Nigeria using the ex post facto research design. They made use of secondary data comprising of seven (7) quoted manufacturing companies (2007-2016). They analysed using the pooled OLS method and found that the influence of ETR on firm growth is not statistically significant, and so, should be ignored as a key determinant of firm growth. They also found that leverage (LEV) impact positively on firm growth, but this impact is not statistically significant. They however recommended that on the efficient use of tax rate to generate firm growth should be encouraged. The key observable anomaly of their study, just like as pointed out in Onatuyeh and Odu (2019), is the deviation of their recommendation from the major finding. As observed, aggressive tax practice was found as a non-significant driver of firm growth, and same was recommended for firm growth.
Atu et al.(2018) examined the effect of firm attributes on tax aggressiveness in Nigeria using secondary data comprising of fifteen (15) DMBs from 2013-2017. They deployed the use of the OLS regression technique. Their result showed that firm size, leverage, and liquidity have significant impacts on tax aggressiveness in Nigeria while profitability has a non-significant impact on tax aggressiveness. They recommended that the initial focus of tax authorities should be on creating a tax culture amongst the people, and less on maximizing revenue or enforcing stringent tax compliance measures. The observable defect of this study is the wrong quotation of population as there were only thirteen (13) commercial banks listed on the Nigerian Stock Exchange during the period of their study.
Ugbogbo et al.(2018) evaluated the corporate determinants of aggressive tax avoidance in Nigeria from the dimension of the firm-specific attributes. The used secondary data extracted from the annual reports of 40 Nigerian listed companies from year 2013 to 2017. With the aid of the OLS multiple regression technique, they found empirical evidence that firm size has positive relationship with corporate tax aggressive avoidance while profitability and leverage have negative significant relationships with corporate tax aggressive avoidance. They recommend that profitability, firm size and leverage should be given more attention in the course of considering the determinants that affects tax aggressive by various stakeholders, especially in Nigeria. A major defect of their study is that they were not explicit on the number of sectors considered as ‘manufacturing companies’ leading to their reliance on a sample of only 40 companies excluding other sectors that are still into manufacturing such as the oil and gas sector.
Inua (2018) studied the determinants of corporate effective tax rates in Nigeria using a sample of 30 manufacturing companies. Secondary data was used as obtained from the annual accounts of the sampled companies from 2011-2016. Using the panel data regression technique, the result showed that firm leverage, board independence and board size are negatively and significantly related to ETR, while firm size is negatively and non-insignificantly related to ETR. The study recommends that external board members with experience in accounting, finance and management issues should be highly encouraged as this will reduce the tax rate and bring about efficient tax practices. Despite studying the same sector, Inua’ result on firm size contradicts that of Ugbogbo et al. (2018), showing negative and positive relationships respectively. This may be as a result of the miniature sample employed by the former – which applied unscientific method in sampling only 30 companies out of a population of 170.
Salaudeen and Eze (2018) studied the effect of firm-specific attributes on corporate effective tax rate in Nigeria. They sampled a total of 59 non-financial firms from 10 different sectors quoted in the NSE from 2010-2014. They employed the panel data regression technique and found that the level of ETR differs based on sector/industry type. The result also showed that larger and more profitable firms have high tax burden while firms with high leverage, capital intensity, and tax expert (auditor type) are faced with lower ETR. Their result however showed no significant relationship between ETR and labour intensity. They concluded that tax incentives provided by the Nigerian tax authorities are substantially significant even though they vary from sector to sector. They queried the dispersion in the ETR found amongst the different sectors which challenges the equity of the corporate tax system in Nigeria. However, Salaudeen and Eze (2018) did not proffer any recommendation which can be considered a defect to the study.
Salaudeen (2017) also examined the corporate effective tax rates in the Nigerian financial sector and their determinants using a sample of 24 financial companies from listed on the NSE from 2010-2014. Salaudeen used two different proxies of tax aggressive measures, the GAAP ETR and Cash ETR. Using the panel regression analyses, Salaudeen found that profitability, firm leverage and capital intensiveness as the determinants of the both GAAP ETR and CASH ETR, meaning they negatively affect tax aggressiveness. The study recommends the need to increase tax incentives in activities auxiliary to banking services and insurance activities sub sector of the financial services sector where the mortgage firms belong. It is worthy of note that his recommendation was not based on the findings.
Ogbeide (2017) examined the impact of firm characteristics on tax aggressiveness in Nigeria. He sampled a total of 85 non-financial companies listed on the NSE for the period 2012 to 2016. He used the panel data method of regression and found that firm size exerts positive and significant effects on tax aggressiveness, while leverage is significant and exerts negative effect on tax aggressiveness. Also, external audit quality (audit fees) and tax aggressiveness are significantly positively related. The study recommends that listed firms in Nigeria should make it a practice to adequately compensate managers and board of directors strategically as this will assist to reduce their tendency to engage in rent seeking/managerial opportunism and lead to lower effective tax rate. Just like the observation in Salaudeen (2017), Ogbeide (2017) failed to tailor his recommendation to flow from his findings.
Balakrishnan et al. (2017) examined the impact of tax aggressiveness on corporate transparency in United Kingdom. They used secondary data comprising of 40,193 firm-year observations that run from 1990 to 2013 extracted from the Compustat database. They used GAAP-ETR tax aggressive measure in a multiple regression analysis technique and found that aggressive tax planning is significantly associated with lower corporate transparency. The concluded that managers at tax aggressive firms attempt to mitigate these transparency problems by increasing various tax-related disclosures. As a result, firms face a trade-off between tax benefits and financial transparency when choosing the aggressiveness of their tax planning. They, however, did not give any policy recommendation based on their result.
Nwaobia and Jayeoba (2017) examined the effect of tax planning strategies on firms’ liquidity. Various tax planning strategies were discussed but the strategies of Capital Intensity (CAPINT), Thin Capitalization (TINCAP), Lease Option (LOPT) and Industry sector incentives (IND) were selected as the independent variable. The Criterion variable used was firms’ liquidity measured in this study by the Current Ratio (CR) while firm size (SIZE) was adopted as the control variable. Data obtained from 154 firm-year observations were described and regression analysis was used to test the hypothesis developed. The results reveal that tax planning strategies exert negative effects on firms’ liquidity. Their study recommend appropriate measures and skill should be applied in determining appropriate mix of strategies toadopt for tax planning purpose as some strategies if not properly designed and applied mayreduce tax liability at the expense of firm’s liquidity. This researcher considers the sampling of only 11 companies is rather too small for the sample size which makes the outcome of the study non-generalizable.
Irianto et al.(2017) examined the factors that affect the company’s tax avoidance. There are several factors used include size, leverage, profitability, and capital intensity. The purpose of this study is to determine the influence of firm size, leverage, profitability and capital intensity ratio on tax avoidance in manufacture companies listed on the Indonesian Stock Exchange 2013-2015. Population taken as the object of observation amounted to 156 manufacturing companies listed in Indonesia Stock Exchange in the period 2013-2015. Determination of the sample was made by applying purposive sampling method and obtains a sample of 36 manufacturing companies based on certain criteria. Their results showed that the size positive influence on the effective tax rate, while leverage, profitability and capital intensity ratio does not significantly influence tax avoidance practices. Their study did not provide a single recommendation, save for conclusion and summary of findings.
Rania et al.(2017) analysed the effects of the corporate’s characteristics on tax avoidance and to analyse the effects of moderation of earnings management on the relationship between the corporate’s characteristics and tax avoidance. The corporate’s characteristics in their study were proxied using profitability, leverage, and company size. They selected 49 manufacturing companies listed on the Indonesia Stock Exchange of the period of 2012-2016 as samples using the cluster random sampling technique. The result of their panel data regression with random effect model shows that the characteristics of a company, namely the profitability and the size have a significant negative effect on tax avoidance, whereas the leverage has a significant positive effect on tax avoidance. Their study did not give any recommendation which is considered a major limitation.
Kim and Im (2017) conducted a study on the effect and determinants of small-and medium-sized entities conducting tax avoidance using companies listed on the Korean Stock Exchange. Their sample consists 18,954 audited firms including those external audited from 2011 to 2013. They argue that the financial determinants of tax aggressiveness vary between small (SMES) and big (non-SMEs) companies. They used the BTD measure and found that firm size negatively affected tax avoidance, while profitability, the leverage, the operating cash flow, the capital intensity, the R&D intensity, and the growth rate had a positive effect on tax avoidance. They conclude that there is significant difference between the drivers of tax avoidance of small and large firms. They recommend that large firms should be properly monitored an observed during in order to curtail aggressive tax practices. Their study differs from this current study owing to their focus on unlisted firms.
Yangyang et al. (2017) investigated the effect of liquidity on corporate tax avoidance. They document that firms with higher liquidity engage less in extreme (i.e., either overly aggressive or overly conservative) tax avoidance. The effect of liquidity on tax avoidance is economically meaningful, is robust across alternative measures of tax avoidance and stock liquidity, and holds after controlling for potential endogenous effects. They further document that the effect of liquidity on tax avoidance is amplified for firms with a high proportion of activist shareholders, and is attenuated for firms with high levels of stock price in formativeness. The entirety of the findings was consistent with the view that stock liquidity mitigates extreme tax avoidance by enhancing shareholders’ control over firm management. However, no recommendation, in line the outcome of the study, was found in their work which tends to make the work incomplete in form.
Anouar and Houria (2017) examined the significant relationship that exists between tax avoidance and firm size. The study made use of 45 listed Moroccan corporate groups, over 2011–2015 periods. 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. They added that tax considerations have made debt financing, the preferential form of financing in areas with high taxation. Their study did not make any policy recommendation, save for suggestions that future studies should look at the determinants of tax avoidance from the areas of the relationship of the directors’ board with the shareholders, the role of the tax authority, the personnel’s skills and the tax havens.

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PART 2: FIRM ATTRIBUTES AND TAX AGGRESSIVENESS IN NIGERIAN QUOTED FINANCIAL SERVICES COMPANIES BY YAKUBU KARIM