Tax Shield and the Performance of selected Quoted Manufacturing Companies in Nigeria

The ability of quoted companies to improve financial performance through effective tax planning remains a significant concern in Nigeria, particularly given the rising cost of doing business and the need to optimize available tax incentives. Despite the potential of tax shields to reduce taxable income and enhance corporate profitability, their contribution to the performance of quoted companies remains insufficiently established. This study therefore examines the effect of tax shields on the performance of selected companies quoted on the Nigerian Exchange Group (NGX). An ex-post facto research design was adopted, using secondary data extracted from the annual reports of 15 purposively selected firms over the period 2014–2024, yielding 165 firm-year observations. Firm performance was measured by return on assets (ROA), while interest expense (INTS), debt service (DSTS), depreciation (DEPTS), amortization (AMTS) and charitable donations (CDTS) represented the tax-shield proxies. The data were analysed using pooled ordinary least squares, fixed-effects and randomeffects estimators. The Levin–Lin–Chu test confirmed that all variables were stationary at level, while the Hausman test (χ² = 12.4837, p = 0.0285) favoured the fixed-effects model. The regression results revealed that all five tax shields exerted positive and statistically significant effects on ROA: INTS (β = 0.0169, p = 0.0008), DSTS (β = 0.0198, p = 0.0007), DEPTS (β = 0.0245, p = 0.0005), AMTS (β = 0.0139, p = 0.0021) and CDTS (β = 0.0115, p = 0.0014). The model explained 80.41% of the variation in ROA (adjusted R² = 0.7883; F = 49.6624, p < 0.001). Depreciation tax shield recorded the largest coefficient, whereas charitable donation tax shield had the smallest. The study concludes that both debt-based and non-debt-based tax shields significantly enhance the financial performance of quoted companies in Nigeria. It recommends that corporate managers incorporate strategic tax-shield planning into financing and investment decisions, while policymakers maintain clear and stable provisions for capital allowances, interest deductibility and charitable donation relief.