Effect of Corporate Borrowing on Corporate Taxation in Nigeria

Abstract

The study investigates the effects of corporate borrowing on corporate taxation onquoted consumer goods companies in Nigeria. Unlike previous studies that did not identifyclearly the effect of corporate borrowing on corporate taxation. The present study examinehow corporate borrowing and its interactions with short-term borrowing, long-term borrowingand debt equity has impacted on corporate taxation from 2008 to 2015. The study used asample of 26 consumer goods companies quoted in Nigeria. It excluded financial companiesdue to their financial characteristics are different from other industrial companies. Inanalyzing the data, the study adopted panel multiple regression to identify the possible effectsof corporate borrowing on the corporate taxation of consumer goods quoted companies whilewe interpreted fixed effect analysis after using Hausman test. Preliminary analyses were alsoconducted, such as descriptive statistics and correlation matrix. The result shows thatcorporate borrowing had a significant and positive influence on quoted companies’ corporatetaxation. However, when interacted with short-term borrowing and long-term borrowing, itwas revealed that corporate borrowing of quoted companies negatively and significantlyinfluence corporate taxation. In case of debt equity interaction with corporate taxation, thestudy also shows positive and insignificant impact on corporate taxation. The study thereforerecommends that firms should have average debt to equity borrowing to save organizationsfrom high risk of debt borrowing to pay less tax that will lead firms to high risk ofbankruptcy.