Original Research Article | OPEN ACCESS

Firm Size and tax planning: A test of political power or political cost hypotheses

Babatunde Titus Adejumo,¹ , Kadiri Idris¹, Ojurongbe Jubril Olalekan¹, Abiodun Wasiu Sanyaolu¹

¹Director-General, Osun Debt Management Office, Abere, Osogbo, Osun State, Nigeria.

For correspondence:-  Babatunde Adejumo,   Email: babatundeadejumo@ahoo.com

Received: July 12 2022        Accepted: September 26 2022        Published: September 30 2022

Citation: Adejumo, BT, Idris K, Olalekan OJ, Sanyaolu AW. Firm Size and tax planning: A test of political power or political cost hypotheses. Account Tax Rev 2022; 6(3):58-73 doi:

© 2022 The authors.
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Abstract

Taxation is essential in financing government expenditure towards achieving its fiscal goals, among which is the redistribution of wealth. As crucial as tax is to the government, it represents a burden on corporate entities, which has a negative tricycle effect on shareholders' wealth maximisation. To reduce this burden, corporate tax managers have often adopted tax planning strategies; this practice has been a significant bane of government tax revenue performance. Arising from this conflicting interest between corporate taxpayers and the government, this study investigated the dynamic effect of firm size on tax planning. The study used the Generalised Method of Moment for data from 17 purposively selected companies from 2012 to 2017. The result of the finding reveals a significant positive effect of firm size on tax planning, while board size has no significant positive effect. Sales were, however, found to exert a significant negative influence on tax planning. The study concludes that firm Size and sales are the significant drivers of tax planning in Nigeria. The study recommends, among others, that companies should always use tax experts and issue more debt to reduce the tax burden.

Keywords: Tax planning, firm Size, board size, sales growth and generalised method of moment