Effect of Accounting Conservatism on Tax Effectiveness: Evidence from Nigerian Non-Financial Listed Firms

Abstract

This study examines the influence of accounting conservatism on tax effectiveness in Nigeria. Accounting conservatism was measured by proxies using Basu as well as Shivakumar regression models, while tax effectiveness was measured by deferred tax liabilities plus income tax payable divided by total assets. The population consists of all the companies listed on the Nigerian Exchange Group (NGX). The study considered the agriculture, conglomerates, consumer goods, construction and real estate, health care, ICT, industrial goods, oil and gas, natural resources, and services sectors listed on the NGX for eleven years of observation from 2012 to 2022, using the purposive sampling technique. Pool OLS (Ordinary Least Squares) regression was employed to analyze secondary data obtained from 76 selected non-financial listed firms. The results show that the accounting conservatism measure by the Basu regression model is positively statistically significant on tax effectiveness. However, accounting conservatism using the Ball and Shivakumar regression models reveals a negative and not significant effect on tax effectiveness. Also, firm size has a negative and statistically significant effect on tax effectiveness. The study concludes that accounting conservatism measured by Basu model has a significant effect on tax effectiveness among non-financial listed firms in Nigeria. Thus, the study recommends that non-financial listed firms should ensure the effective application of accounting conservatism that does not lead to unintended tax consequences or distortions in the tax system.