Corporate financing and taxation in an emerging economy

  • Authors

    • Cordelia Onyinyechi Omodero Department of Accounting, College of Management and Social Sciences Covenant University Ota, Ogun State, Nigeria
    • Ebieri Jones Michael Okpara University of Agriculture, Umudike Umuahia, Abia State Nigeria
    • Gbenga Ekundayo Oman College of Management and Technology, Muscat, Oman
    https://doi.org/10.14419/1ctxym56

    Received date: April 17, 2025

    Accepted date: May 28, 2025

    Published date: June 1, 2025

  • Corporate Financing, Equity, Corporate Bond, Bank Loan, Private Sector; Borrowing Cost

  • Abstract

    The present study analyzes the effects of corporate financing arrangements on corporate income tax in Nigeria over the period from 1991 to ‎‎2023. It is a common practice for businesses to strategically plan their capital structures by leaning towards debt financing, to ‎lower their corporate tax liabilities. This situation poses a challenge, as the interest payments to creditors are tax exempt and ‎deductible finance expense before determining the taxable profits of companies. As a result, some entities find themselves with insufficient taxable ‎income after interest deductions, thereby limiting government's chances to collect taxes needed for social duties. This research evaluates the ‎interaction between corporate income tax and the financing structures of firms in Nigeria, setting itself apart from existing studies that focus ‎on how corporate tax influences capital structure. Data concerning corporate income tax is obtained from the Federal Inland Revenue Service, now known as the Nigeria Revenue Service. Statistics on equity, corporate bonds, private sector bank loans, and borrowing cost is ‎sourced from the Central Bank of Nigeria. The study applies the Vector Error Correction Model to investigate the short- and long-term ‎effects of the predictor variables on corporate income tax. Findings indicate that both in the short and long term, equity, corporate bonds, ‎private sector bank loans, and their borrowing costs have significant harmful effect on corporate income tax. In view of this outcome, the research recommends that the government should implement a policy that will mandate firms to adopt a corporate financing structure that prioritizes and increases their equity percentage above debt financing.

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  • How to Cite

    Omodero, C. O. . ., Jones , E. ., & Ekundayo , G. . (2025). Corporate financing and taxation in an emerging economy. International Journal of Accounting and Economics Studies, 12(2), 27-34. https://doi.org/10.14419/1ctxym56