CHAPTER FOUR

RESULT AND DISCUSSIONS

This chapter presents the result of analysis on the data obtained from the financial

statement of the selected manufacturing firms quoted on the Nigeria Exchange Group. The

required data was extracted to compute the identified variables used in this study. The analysis

done such descriptive analysis, correlation analysis, panel least square and various test and

evaluation techniques were presented as follows:

Table 4.1: Descriptive Analysis

PAT CIT EDT WHT

Mean 19163215 2200792. 305985.8 56389.20

Median 8092644. 805219.0 112442.5 21893.50

Maximum 1.04E+08 17487744 5199076. 437194.0

Minimum 787338.0 62991.00 10122.00 1575.000

Std. Dev. 23610721 3793236. 610251.4 94843.07

Skewness 2.108279 2.910974 5.614340 2.872190

Kurtosis 7.258929 10.97138 42.93719 10.79889

Jarque-Bera 149.6576 405.9913 7171.094 390.9192

Probability 0.000000 0.000000 0.000000 0.000000

Source: Data Analysis, 2023

Table 4.1 showed the descriptive analysis results of corporate tax on financial performance of the

quoted manufacturing firm in Nigeria for the period 2012-2021. The financial performance was

measured with profit after tax (PAT) and corporate tax was captured with company income tax

(CIT), education tax (EDT) and the withholding tax (WHT) of the manufacturing firms under

investigation. The result revealed on average that profit after tax of manufacturing firm (PAT),

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company income tax (CIT), education tax (EDT) and the withholding tax (WHT) of the

manufacturing firms were 19163215, 2200792, 305985.8 and 56389.20 respectively. The

maximum & the minimum investment of the manufacturing firm (INVD), company tax (CIT),

education tax (EDT) and the withholding tax (WHT) of the manufacturing firms were: 1.0408 &

787338, 17487744 & 62991, 5199076 & 10122 and 437194 & 1575 respectively. The standard

deviation values of 23610721, 3793236, 610251.4 and 94843.07 revealed the rate at which the

investment of the manufacturing firm (INVD), company income tax (CIT), education tax (EDT)

and the withholding tax (WHT) of the manufacturing firms were been deviated from their

respective average or expected value.

Also, it was discovered that financial performance of the manufacturing firm (PAT),

company income tax (CIT), education tax (EDT) and the withholding tax (WHT) of the

manufacturing firms were positively skewed with skewness coefficient of 2.108, 2.911, 5.614

and 2.872 respectively thus implies that the distribution of the variables under investigation have

a long tail to the right. However, the kurtosis of the financial performance of the manufacturing

firm (PAT), company income tax (CIT), education tax (EDT) and the withholding tax (WHT) of

the manufacturing firms with kurtosis coefficient indexes of 7.259, 10.971, 42.937 and 10.798

respectively were mesokurtic in nature. The Jarque-Bera and probability values revealed that the

financial performance of the manufacturing firm (INVD), company income tax (CIT), education

tax (EDT) and the withholding tax (WHT) of the manufacturing firms were statistically

significance in examining the effect of corporate tax on the financial performance of the quoted

manufacturing firms in Nigeria.

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Table 4.2: Correlation Matrix
ROA CIT EDT WHT
PAT 1.000000 0.227943 0.265274 0.135625
CIT 0.227943 1.000000 0.836023 0.515241
EDT 0.265274 0.836023 1.000000 0.600448
WHT 0.135625 0.515241 0.600448 1.000000
Source: Data Analysis, 2023
Table 4.2 showed the degree or the extent of relationship that exist between the corporate

tax and financial performance of quoted manufacturing firm under investigation in Nigeria. It

was discovered that a positive correlation was revealed between financial performance of the

manufacturing firms and company income tax, financial performance of the manufacturing firm

and the education tax and the financial performance of the manufacturing firms and the

withholding tax of the manufacturing firms with correlation coefficient of 0.23, 0.27 and 0.16

respectively. Also, a positive correlation was discovered between the company income tax and

education tax, company income tax and withholding tax of the manufacturing firms as well as

education tax and withholding tax of the manufacturing firms with correlation coefficient of

0.84, 0.52 and 0.60 respectively. This implies that an increase in company income tax, education

tax and withholding tax of the manufacturing firms will lead to an improvement in the financial

performance regarding the operation of the manufacturing firms in Nigeria.

Table 4.3 Panel Unit Root Test

Variables LLC Stat Prob. IPS Stat Prob ADF Stat Prob. Integration
PAT -675648 0.000 -3.77577 0.000 53.1653 0.000 I(1)
CIT -7.84476 0.000 -3.61212 0.000 52.9295 0.000 I(1)
EDT -6.48655 0.000 -2.34466 0.010 39.6362 0.006 I(1)
WHT -5.37748 0.000 -2.19716 0.014 36.7273 0.013 I(0)
Source: Data Analysis, 2023

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Table 4.3 showed the result of panel unit root for the relationship between corporate tax and

financial performance of manufacturing firms under consideration using the common unit root

test such as Levin-Lin-Chu (LLC) test and individual unit root test using the lm-Pesaran-Shin

test (LPS) and Augmented Dickey Fuller test (ADF). The result of the Levin-Lin-Chu (LLC) for

financial performance of manufacturing firms (ROA), company income tax (CIT), education tax

(EDT) and withholding tax of the manufacturing firms (WHT) with the respectively probability

values of 0.000, 0.000, 0.000 and 0.000 < 0.05 revealed that all the variables were stationary.

Also, the lm-Pesaran-Shin test (LPS) and Augmented Dickey Fuller test (ADF) for all the

variables with (P < 0.05) established the stationarity of the variables. It was further revealed that

all the variables under consideration in this study at both common and individual level of unit

root test were stationary at first difference I(1) except the withholding tax (WHT) of the

manufacturing firm that was stationary at level I(0). Thus, implies the short run equilibrium

relationship between the corporate tax and financial performance of the manufacturing firms in

Nigeria.

Table 4.4: Panel Least Square Pooled Effect Model

Dependent Variable: PAT
Method: Panel Least Squares
Periods included: 10
Cross-sections included: 10
Total panel (balanced) observations: 100
Variable Coefficient Std. Error t-Statistic Prob.
C 7697212. 1556846. 4.944105 0.0000
CIT 5.976271 2.964705 2.015806 0.0466
EDT 5.785161 2.707686 2.289975 0.0215
WHT -34.16925 117.8901 -0.289840 0.3261
R-squared= 0.699, Adjusted R-square = 0.690, F-statistic = 74.479, Prob F-statistic =
0.000, Durbin-Watson Stat = 0.574
Source: Data Analysis, 2023

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 Table 4.4 showed the result of the pooled panel regression output. It was discovered from

the result that a linear relationship exists between the corporate tax and financial performance of

quoted manufacturing firms in Nigeria. Specifically, the result showed that company income tax

(CIT) and education tax (EDT) of the quoted manufacturing firm were positively related with the

financial performance of manufacturing firm (ROA) while a negative relation was discovered

between the withholding tax (WHT) of the manufacturing firms under consideration in Nigeria.

This result further revealed that the company income tax (CIT) and education tax lead to 5.98

and 5.79 percent increase in enhancing the investment of the quoted manufacturing firms. The

withholding tax of the manufacturing firm value of -34.17 implies that the withholding tax of the

manufacturing firms limited or hampered the financial performance of the quoted manufacturing

firms during the period under investigation.

The probability values of 0.0466 and 0.0215 < 0.05 revealed that the estimated parameter

for the company income tax (CIT) and education tax (EDT) for the manufacturing firms in the

model was statistically significant in determining the financial performance of the quoted

manufacturing firms in Nigeria. Thus, the need for the management the quoted manufacturing

firms to maximize the benefit of corporate tax to regulate and control their financial

performance. The adjusted R-squared of 0.690 showed the 69 percent variation or improvement

in the financial performance of the quoted manufacturing firms in Nigeria can be explained by

the company income tax, education tax and withholding tax of the manufacturing firm. Thus, it

implies the relevance and the importance of company income tax, education tax and withholding

tax in enhancing the sustainability of the financial performance of the quoted manufacturing

firms in Nigeria. Above all, the probability of the F- statistics 0.000 ˂ 0.05 showed that the

pooled panel regression fitted was valid, reliable, appropriate and acceptable for determining the

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effect of corporate tax on the financial performance of the quoted manufacturing firms in

Nigeria.

Table 4.5: Correlated Random Effects - Hausman Test

Test cross-section random effects
Chi-Sq.
Test Summary Statistic Chi-Sq. d.f. Prob.
Cross-section random 2.340175 3 0.5049
Cross-section random effects test comparisons:
Variable Fixed Random Var(Diff.) Prob.
CIT 4.369660 5.182115 0.484337 0.2430
EDT -1.141903 -0.215996 0.453002 0.1689
WHT 12.868687 -6.625632 414.154598 0.3381
Source: Data Analysis, 2023
Table 4.5 showed the result of Hausman Test for the cross-section random effect. The

chi-square value 2.340 < 5.991 and the probability value of 0.504 ˃ 0.05 revealed that the

random effect model fitted for the study of corporate tax captured by company income tax (CIT),

education tax (EDT) and withholding tax (WHT) of the manufacturing firms was not better than

the fitted fixed effect model in this study. Also, the probability value for the variance different

for the estimated parameter for company income tax (CIT), education tax (EDT) and withholding

tax (WHT) of the manufacturing firms which were 0.243, 0.169 and 0.338 ˃ 0.05 affirmed the

inappropriateness of random effect model.

4.6 Discussion and Implication of the Findings

The study on the effect of corporate tax on financial performance of the quoted

manufacturing firm revealed that company income tax and withholding tax for the manufacturing

firm positively related to the financial performance of the quoted manufacturing firm. Also, it

was further revealed that education tax for the manufacturing firm had a negative relation with

the financial performance of the quoted manufacturing firm. Thus, according to Everlyne (2013),

corporate tax affected the financial performance of the firms and as such a reduced corporate tax

6
would increase the financial performance of the manufacturing firms. Also, Djankov, (2010)

study revealed that effective corporate tax rate had an adverse effect on aggregate financial

performance of the manufacturing but not services, as well as with the size of the informal

economy. Thus, it can be emphasized that company income tax and education tax had a

statistical significance effect on the financial performance of the quoted manufacturing firm in

Nigeria. Oloidi (2014) studied on the effect of company income tax on financial performance of

companies liable under the company income tax Act in Nigeria emphasized the influence of

company income tax on the rate of return on investment and investment evaluation criteria. This

showed that tax incentives motivate investment and on the overall, tax was considered to be very

important when compared with other factors affecting investment decisions and such tax policy

must aim at fostering economic growth and investment in new capital to encourages

implementation of new production techniques and introduction of new products. The study

carried out by Edame and Okoi (2014) on the impact of taxation on financial performance

showed that an inverse relationship exists between taxation and financial performance.

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 CHAPTER FIVE

SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Summary

The study investigated effect of corporate tax on financial performance of the quoted

manufacturing firms in Nigeria. The study was structured in such a way that chapter one deal

with background to the study; statement of the problems; research questions; objectives of the

study; research hypotheses; the significant of the study; scope of the study and various

operational definition of terms. In chapter two, various reviewed of relevant literatures were

done based on the concepts such taxation, financial administration of taxes, the company income

tax, theories which includes: neo-classical theory, agency theory, and normative theory; related

empirical studies were reviewed.

However, area of the study, source of data, model specification, estimation technique and

diagnostic evaluation were addressed in chapter three. In chapter four, the study focused on

descriptive analysis and correlation analysis; fitted panel least square regression model for the

pooled, fixed and random data and test for the significance of the estimated parameters as well as

test for the adequacy of the model, the Hausman test, residual for cross-sectional independence,

other diagnostics testing carried out includes: test for the significant of the model, standard error

test, probability test as well as discussions and implication of the study. The summary;

conclusion; recommendations; contribution to knowledge and suggestions for further study on

this subject were addressed in chapter five.

5.2 Conclusions

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 The study revealed that company income tax (CIT) and withholding tax (WHT) for the

manufacturing firm positively related to the financial performance of the quoted manufacturing

firm (PAT) and thus enhanced the financial performance of the quoted manufacturing firm

(PAT) in Nigeria by 4.37 and 12.87 percent respectively. Also, it was further revealed that

education tax (EDT) for the manufacturing firm had a negative relation with the financial

performance of the quoted manufacturing firm (PAT) and thus reduced or limited the financial

performance of the quoted manufacturing firm (PAT) in Nigeria by 4.14 percent thus,

established the relevance and the importance of company income tax, education tax and

withholding tax in enhancing the sustainability of the financial performance of the quoted

manufacturing firms in Nigeria. Therefore, the study concluded that corporate tax has both

positive and negative effect of financial performance of quoted manufacturing firms in Nigeria

5.3 Recommendations

The study revealed that company income tax and withholding tax were positively related

with the financial performance of the manufacturing firm while a negative relation was

discovered between the education tax and the manufacturing firm’s investment in Nigeria. Based

on the findings of the study, the following recommendations are made:

i. Taxation is an inevitable source of government revenue, the problem of double

taxation imposed on manufacturing firms should be avoided, and tax incentives in the

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 form of tax cut should be provided for the manufacturing firms for better

encouragement that can enhance the investment drive that will boost the economy.

ii. There is need for manufacturing firms to engage the service of competent and

qualified personnel that would help in formulating and implementing a good

corporate tax policy that can engender the financial performance of the firms.

iii. There is a need for effectively used the revenue generated from taxation particularly

company income tax, education tax and withholding tax to provide necessary critical

infrastructure that can significantly influence the financial performance in the

manufacturing firms.

5.4 Contribution(s) to Knowledge

This study contributed to the knowledge by providing insight and established the

relationship between corporate tax captured by company income tax, withholding tax and

education tax and the financial performance of the quoted manufacturing firms. It revealed the

relationship between company income tax, withholding tax and education tax and the financial

performance of the quoted manufacturing firms. This study opened up the understanding of firms

that were involved in corporate income tax on the need to maintain a sound and effective tax

management for their survival, sustainability and profitability drive.

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