Effect of real earnings management on tax planning of listed manufacturing firms in Nigeria

https://doi.org/10.35912/ijfam.v6i2.2100
Published: Oct 10, 2024

Abstract:

Purpose: This study examines the effect of real earnings management on corporate tax planning of listed manufacturing firms in Nigeria.

Method: The study used secondary data of 41 listed manufacturing firms in Nigeria extracted from the annual reports and accounts of the sampled firms for the period 2012 to 2022. The data collected for the study were statistically analyzed using dynamic panel data from the generalized moment method (GMM).

Results: The study found that abnormal production has positive and significant effect on tax planning, the study also revealed that abnormal discretionary expense has positive and significant effect on tax planning. The study also documents a positive and significant influence of abnormal production on tax planning. The study also reveals that real earnings management has a positive and significant impact on tax planning.

Limitations: The study is limited to real earnings management and tax planning; it is limited to 41 listed manufacturing firms in Nigeria and covers 12 years, from 2012 to 2022.

Contribution: This study contributes to the existing literature by providing empirical evidence on the relationship between real earnings management and tax planning, specifically within the context of Nigerian manufacturing firms. The findings will inform policymakers and regulatory bodies regarding the effectiveness of current tax regulations and practices in Nigeria's manufacturing sector.

Novelty: This study's focus on Nigerian manufacturing firms adds a novel dimension to the existing literature, as there may be unique factors and challenges specific to this context. In addition, the study provides a novel approach by employing dynamic panel data of GMM.

Keywords:
1. Tax planning real earnings management
Authors:
1 . Rabiu Ado
Bayero University Kano Nigeria
2 . Udisifan Michael Tanko
Federal University Wukari, Taraba, Nigeria
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How to Cite
Ado, R. ., & Tanko, U. M. (2024). Effect of real earnings management on tax planning of listed manufacturing firms in Nigeria. International Journal of Financial, Accounting, and Management, 6(2), 231–243. https://doi.org/10.35912/ijfam.v6i2.2100
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Issue & Section
Vol. 6 No. 2 (2024): September
Articles
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This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

References

    Adegbite, E., & Nakajima, C. (2020). Earnings management and corporate governance in Nigeria: An empirical analysis. Journal of Accounting in Emerging Economies, 10(3), 467-491.

    Adeyemi, S. L., Oyelere, P., & Adegbite, E. (2020). Earnings management in Nigeria: The role of corporate governance mechanisms. Journal of Financial Reporting and Accounting, 18(3), 462-486.

    Aladesanmi, O. S., & Nzewi, H. (2021). Earnings management, corporate governance, and firm performance: Evidence from Nigerian manufacturing firms. The Journal of Developing Areas, 55(3), 61-77.

    Almashaqbeh, A. A., Abdul-Jabbar, H., & Shaari, H. (2018). Real earnings management and tax considerations: A conceptual analysis. International Journal of Business Management and Commerce, 3(2), 25-36.

    Alvindra, A., Hutagalung, S. S., & Sutiyoso, B. U. (2023). Forecasting of local tax realization with least square method in Tanggamus Regency. International Journal of Financial, Accounting, and Management, 5(1), 59-73.

    Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277-297.

    Assfaw, A. M., & Sebhat, W. (2019). Analysis of tax compliance and its determinants: evidence from Kaffa, Bench Maji and Sheka zones category B tax payers, SNNPR, Ethiopia.

    Bassey, E., Amobi, B. N., & Okorie, A. N. (2022). Choice of location for Foreign Direct Investment by multinational corporations: Do tax burden matter? International Journal of Financial, Accounting, and Management, 3(4), 349-358.

    Bayunanda, A., Ompusunggu, A. P., & Ak, M. (2018). Influence of Debt to Equity Ratio, Return on Assets, and Earning Management on Tax Avoidance (Survey on Manufacturing Companies Registered in BEI). International Journal of Business, Economics and Law, 15(5), 133-142.

    Cohen, D. A., & Zarowin, P. (2010). Accrual-based and real earnings management activities around seasoned equity offerings. Journal of accounting and economics, 50(1), 2-19.

    Creswell, J. W. (2019). Research Design : Qualitative, Quantitative, and Mixed Methods Approaches (4 ed.): Sage Publications.

    Desai, M. A., & Dharmapala, D. (2006). Corporate tax avoidance and high-powered incentives. Journal of Financial Economics, 79(1), 145-179.

    Edwards, A., Schwab, C., & Shevlin, T. (2016). Financial constraints and cash tax savings. The accounting review, 91(3), 859-881.

    Ejeh, B. U., & Salaudeen, Y. M. (2018). Equity ownership structure and corporate tax aggressiveness: the Nigerian context. Pressacademia, 5(2), 90–99. https://doi.org/10.17261/pressacademia.2018.828

    El Mokrani, Y., & Alami, Y. (2021). The effects of corporate governance mechanisms on earnings management: Empirical evidence from Moroccan listed firms. International Journal of Financial, Accounting, and Management, 3(3), 205-225.

    Elmadhoun, I., & Reddy, G. N. (2022). The Effect of Real Earnings Management on Economic Value Added: Listed Companies of Dubai Financial Market. International Journal for Research in Applied Science & Engineering Technology (IJRASET), 10(1), 1577-1587.

    Ishak, J. F. (2024). The role of earnings quality in the impact of earnings management and leverage on firm value. International Journal of Financial, Accounting, and Management, 5(4), 419-428.

    Iyoha, F. O., & Ayanwale, A. B. (2021). Real earnings management and firm value: Evidence from Nigerian listed manufacturing firms. Journal of Finance and Risk Perspectives, 10(3), 1-22.

    Ka?do?ski, M., & Jewartowski, T. (2020). Do firms using real earnings management care about taxes? Evidence from a high book-tax conformity country. Finance Research Letters, 35, 101351.

    Klassen, K. J., Lisowsky, P., & Mescall, D. (2016). The role of auditors, non-auditors, and internal tax departments in corporate tax aggressiveness. The accounting review, 91(1), 179-205.

    Knuutinen, R. (2014). Corporate social responsibility, taxation and aggressive tax planning. Nordic Tax Journal, 2014(1), 36-75.

    Kurniasih, L., & Suranta, S. (2017). Earnings management, corporate governance and tax avoidance: The case in Indonesia. Corporate Governance and Tax Avoidance: The Case in Indonesia (December 9, 2017). J. Fin. Bank. Review, 2(4), 28-35.

    Lawal, A. I., Akeke, N. I., & Adegbite, E. (2021). Tax planning and firm performance: Evidence from Nigerian listed manufacturing firms. Journal of African Business, 22(2), 189-209.

    Lin, Y.-M., & Chien, H. F. (2016). The relationship between financing policy, earnings management and governance practices. Asian Journal of Finance & Accounting, 8(1), 230-278.

    Maigoshi, Z. S., Latif, R. A., & Kamardin, H. (2016). Earnings management: A case of related party transactions. International Journal of Economics and Financial Issues, 6(7), 51-55.

    Maigoshi, Z. S., & Tanko, U. M. (2023). Financial attributes, real earnings management and corporate tax planning of listed manufacturing firms in Nigeria. Journal Of Accounting, 17(1), 43-54.

    Musa, F. A. (2018). Board diversity, audit quality and earnings management of listed deposit money banks in Nigeria.

    Ogbeide, I. O., Anyaduba, J. O., & Akogo, O. U. (2022). Firm attributes and corporate tax aggressiveness in Nigeria. American Journal of Finance, 7(2), 64-87.

    Ogundipe, A. A., Fakile, A. S., & Ajayi, R. O. (2021). Tax planning and firm performance: Evidence from Nigerian listed manufacturing firms. Journal of Accounting in Emerging Economies, 11(4), 658-680.

    Okoye, C. M., Nwanji, T. I., & Ilo, B. I. (2020). Tax planning and firm performance: Evidence from Nigerian listed manufacturing firms. Journal of Finance and Accounting, 8(3), 97-106.

    Okwoli, A. A., Omodero, C. O., & Orabule, V. N. (2021). Corporate governance, tax planning, and firm performance: Evidence from Nigerian listed manufacturing firms. Journal of Management and Sustainability, 11(3), 28-43.

    Oladipupo, A. O., Osamwonyi, I. O., & Olugbode, M. (2020). Tax planning and corporate financial performance: Evidence from listed manufacturing firms in Nigeria. Journal of Economics and Business, 3(1), 23-38.

    Onaolapo, A. A., & Abiodun, T. A. (2022). Real earnings management and tax planning: Evidence from listed manufacturing firms in Nigeria. Journal of Business and Retail Management Research, 16(2), 185-194.

    Oyenike, O., Olayinka, E., & Emeni, F. (2016). Female directors and tax aggressiveness of listed banks in Nigeria. Paper presented at the 3rd International Conference on African Development Issues (CU-ICADI 2016).

    Pettersson, J., & Wu, E. (2015). Do tax evaders manage earnings more?: A quantitative study on the relationship between tax evasion and earnings management.

    Prastiwi, D. (2017). Does corporate governance moderate the effect of earnings management on tax aggressiveness. Paper presented at the Social Sciences, Humanities and Economics Conference (SoSHEC 2017).

    Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of accounting and economics, 42(3), 335-370.

    Santana, S., & Rezende, A. J. (2016). Corporate tax avoidance and firm value: evidence from Brazil. Available at SSRN 2803993.

    Scott, W. R. (2015). Financial Accounting Theory (Seventh Edition ed.): Pearson Canada Inc.

    Siladjaja, M., Gunawan, I. D., & Dwimulyani, S. (2018). The Influences of Real Manipulation Activity on Total Accruals Quality and Tax Management: A Empirical Research to Predict the Future Prospect. American Research Journal of Business and Management, 4(1).

    Siyanbola, A., & Samaila, A. (2022). Firm attributes and tax agressiveness: A quantile regression analysis. Paper presented at the AFRA Conference Book of Proceeding.

    Soje, B., & Tanko, U. M. (2024). Book value and share prices: The mediating effect of inflation in Nigeria. International Journal of Financial, Accounting, and Management, 6(1), 61-74.

    Tanko, U. M. (2023). Financial attributes and corporate tax planning of listed manufacturing firms in Nigeria: moderating role of real earnings management. Journal of Financial Reporting and Accounting.

    Tanko, U. M., Waziri, S. L., & Yusuf, A. (2022). Firm attributes and tax avoidance of Nigerian oil and gas firms: moderating role of managerial ownership. Journal of Accounting Research, Organization and Economics, 5(1), 44-57.

    Trisnawati, R., & Nugroho, S. P. (2011). Earnings Management Practices: The Comparative Studies Between Shariah Index (JII) and Conventional Index (LQ-45) In Indonesian Stock Exchange.

    Watts, R. L., & Zimmerman, J. L. (1990). Positive accounting theory: a ten year perspective. Accounting review, 131-156.

  1. Adegbite, E., & Nakajima, C. (2020). Earnings management and corporate governance in Nigeria: An empirical analysis. Journal of Accounting in Emerging Economies, 10(3), 467-491.
  2. Adeyemi, S. L., Oyelere, P., & Adegbite, E. (2020). Earnings management in Nigeria: The role of corporate governance mechanisms. Journal of Financial Reporting and Accounting, 18(3), 462-486.
  3. Aladesanmi, O. S., & Nzewi, H. (2021). Earnings management, corporate governance, and firm performance: Evidence from Nigerian manufacturing firms. The Journal of Developing Areas, 55(3), 61-77.
  4. Almashaqbeh, A. A., Abdul-Jabbar, H., & Shaari, H. (2018). Real earnings management and tax considerations: A conceptual analysis. International Journal of Business Management and Commerce, 3(2), 25-36.
  5. Alvindra, A., Hutagalung, S. S., & Sutiyoso, B. U. (2023). Forecasting of local tax realization with least square method in Tanggamus Regency. International Journal of Financial, Accounting, and Management, 5(1), 59-73.
  6. Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277-297.
  7. Assfaw, A. M., & Sebhat, W. (2019). Analysis of tax compliance and its determinants: evidence from Kaffa, Bench Maji and Sheka zones category B tax payers, SNNPR, Ethiopia.
  8. Bassey, E., Amobi, B. N., & Okorie, A. N. (2022). Choice of location for Foreign Direct Investment by multinational corporations: Do tax burden matter? International Journal of Financial, Accounting, and Management, 3(4), 349-358.
  9. Bayunanda, A., Ompusunggu, A. P., & Ak, M. (2018). Influence of Debt to Equity Ratio, Return on Assets, and Earning Management on Tax Avoidance (Survey on Manufacturing Companies Registered in BEI). International Journal of Business, Economics and Law, 15(5), 133-142.
  10. Cohen, D. A., & Zarowin, P. (2010). Accrual-based and real earnings management activities around seasoned equity offerings. Journal of accounting and economics, 50(1), 2-19.
  11. Creswell, J. W. (2019). Research Design : Qualitative, Quantitative, and Mixed Methods Approaches (4 ed.): Sage Publications.
  12. Desai, M. A., & Dharmapala, D. (2006). Corporate tax avoidance and high-powered incentives. Journal of Financial Economics, 79(1), 145-179.
  13. Edwards, A., Schwab, C., & Shevlin, T. (2016). Financial constraints and cash tax savings. The accounting review, 91(3), 859-881.
  14. Ejeh, B. U., & Salaudeen, Y. M. (2018). Equity ownership structure and corporate tax aggressiveness: the Nigerian context. Pressacademia, 5(2), 90–99. https://doi.org/10.17261/pressacademia.2018.828
  15. El Mokrani, Y., & Alami, Y. (2021). The effects of corporate governance mechanisms on earnings management: Empirical evidence from Moroccan listed firms. International Journal of Financial, Accounting, and Management, 3(3), 205-225.
  16. Elmadhoun, I., & Reddy, G. N. (2022). The Effect of Real Earnings Management on Economic Value Added: Listed Companies of Dubai Financial Market. International Journal for Research in Applied Science & Engineering Technology (IJRASET), 10(1), 1577-1587.
  17. Ishak, J. F. (2024). The role of earnings quality in the impact of earnings management and leverage on firm value. International Journal of Financial, Accounting, and Management, 5(4), 419-428.
  18. Iyoha, F. O., & Ayanwale, A. B. (2021). Real earnings management and firm value: Evidence from Nigerian listed manufacturing firms. Journal of Finance and Risk Perspectives, 10(3), 1-22.
  19. Ka?do?ski, M., & Jewartowski, T. (2020). Do firms using real earnings management care about taxes? Evidence from a high book-tax conformity country. Finance Research Letters, 35, 101351.
  20. Klassen, K. J., Lisowsky, P., & Mescall, D. (2016). The role of auditors, non-auditors, and internal tax departments in corporate tax aggressiveness. The accounting review, 91(1), 179-205.
  21. Knuutinen, R. (2014). Corporate social responsibility, taxation and aggressive tax planning. Nordic Tax Journal, 2014(1), 36-75.
  22. Kurniasih, L., & Suranta, S. (2017). Earnings management, corporate governance and tax avoidance: The case in Indonesia. Corporate Governance and Tax Avoidance: The Case in Indonesia (December 9, 2017). J. Fin. Bank. Review, 2(4), 28-35.
  23. Lawal, A. I., Akeke, N. I., & Adegbite, E. (2021). Tax planning and firm performance: Evidence from Nigerian listed manufacturing firms. Journal of African Business, 22(2), 189-209.
  24. Lin, Y.-M., & Chien, H. F. (2016). The relationship between financing policy, earnings management and governance practices. Asian Journal of Finance & Accounting, 8(1), 230-278.
  25. Maigoshi, Z. S., Latif, R. A., & Kamardin, H. (2016). Earnings management: A case of related party transactions. International Journal of Economics and Financial Issues, 6(7), 51-55.
  26. Maigoshi, Z. S., & Tanko, U. M. (2023). Financial attributes, real earnings management and corporate tax planning of listed manufacturing firms in Nigeria. Journal Of Accounting, 17(1), 43-54.
  27. Musa, F. A. (2018). Board diversity, audit quality and earnings management of listed deposit money banks in Nigeria.
  28. Ogbeide, I. O., Anyaduba, J. O., & Akogo, O. U. (2022). Firm attributes and corporate tax aggressiveness in Nigeria. American Journal of Finance, 7(2), 64-87.
  29. Ogundipe, A. A., Fakile, A. S., & Ajayi, R. O. (2021). Tax planning and firm performance: Evidence from Nigerian listed manufacturing firms. Journal of Accounting in Emerging Economies, 11(4), 658-680.
  30. Okoye, C. M., Nwanji, T. I., & Ilo, B. I. (2020). Tax planning and firm performance: Evidence from Nigerian listed manufacturing firms. Journal of Finance and Accounting, 8(3), 97-106.
  31. Okwoli, A. A., Omodero, C. O., & Orabule, V. N. (2021). Corporate governance, tax planning, and firm performance: Evidence from Nigerian listed manufacturing firms. Journal of Management and Sustainability, 11(3), 28-43.
  32. Oladipupo, A. O., Osamwonyi, I. O., & Olugbode, M. (2020). Tax planning and corporate financial performance: Evidence from listed manufacturing firms in Nigeria. Journal of Economics and Business, 3(1), 23-38.
  33. Onaolapo, A. A., & Abiodun, T. A. (2022). Real earnings management and tax planning: Evidence from listed manufacturing firms in Nigeria. Journal of Business and Retail Management Research, 16(2), 185-194.
  34. Oyenike, O., Olayinka, E., & Emeni, F. (2016). Female directors and tax aggressiveness of listed banks in Nigeria. Paper presented at the 3rd International Conference on African Development Issues (CU-ICADI 2016).
  35. Pettersson, J., & Wu, E. (2015). Do tax evaders manage earnings more?: A quantitative study on the relationship between tax evasion and earnings management.
  36. Prastiwi, D. (2017). Does corporate governance moderate the effect of earnings management on tax aggressiveness. Paper presented at the Social Sciences, Humanities and Economics Conference (SoSHEC 2017).
  37. Roychowdhury, S. (2006). Earnings management through real activities manipulation. Journal of accounting and economics, 42(3), 335-370.
  38. Santana, S., & Rezende, A. J. (2016). Corporate tax avoidance and firm value: evidence from Brazil. Available at SSRN 2803993.
  39. Scott, W. R. (2015). Financial Accounting Theory (Seventh Edition ed.): Pearson Canada Inc.
  40. Siladjaja, M., Gunawan, I. D., & Dwimulyani, S. (2018). The Influences of Real Manipulation Activity on Total Accruals Quality and Tax Management: A Empirical Research to Predict the Future Prospect. American Research Journal of Business and Management, 4(1).
  41. Siyanbola, A., & Samaila, A. (2022). Firm attributes and tax agressiveness: A quantile regression analysis. Paper presented at the AFRA Conference Book of Proceeding.
  42. Soje, B., & Tanko, U. M. (2024). Book value and share prices: The mediating effect of inflation in Nigeria. International Journal of Financial, Accounting, and Management, 6(1), 61-74.
  43. Tanko, U. M. (2023). Financial attributes and corporate tax planning of listed manufacturing firms in Nigeria: moderating role of real earnings management. Journal of Financial Reporting and Accounting.
  44. Tanko, U. M., Waziri, S. L., & Yusuf, A. (2022). Firm attributes and tax avoidance of Nigerian oil and gas firms: moderating role of managerial ownership. Journal of Accounting Research, Organization and Economics, 5(1), 44-57.
  45. Trisnawati, R., & Nugroho, S. P. (2011). Earnings Management Practices: The Comparative Studies Between Shariah Index (JII) and Conventional Index (LQ-45) In Indonesian Stock Exchange.
  46. Watts, R. L., & Zimmerman, J. L. (1990). Positive accounting theory: a ten year perspective. Accounting review, 131-156.