Tax Incentives and Firm Performance: Evidence from Listed Manufacturing Firms in Nigeria

This study investigates the relationship between tax incentives and firm performance among listed manufacturing companies in Nigeria. By addressing the two research limitations identified in previous literature- the omitted variable bias and the use of the granular approach in measuring tax incentives, this study significantly contributes to the existing literature. We analyze the survey responses obtained from 296 respondents purposively selected from four groups of stakeholders in manufacturing activities in Nigeria and using data set from 2012 to 2021 for 65 manufacturing companies listed on the Nigerian Exchange Group. Based on the strength of the random effects estimation technique, the study explored the relationship between tax incentives and firm performance. The findings of the study show that tax incentives serve as an important instrument for companies' substitutionary operating cost, that is, the cost of providing services and facilities not provided by the government. Tax incentives also seem to motivate factory siting decisions amongst manufacturing companies. Our results show evidence of a somewhat robust tax incentives scheme to encourage both local and foreign investments into the manufacturing sector. Additionally, findings reveal that existing tax incentives in Nigeria directly influenced financial performance using return on capital employed, return on assets, earnings per share and market to book value ratio. Finally, results suggest that tax incentive as a fiscal policy instrument is imperative to drive efficiency in manufacturing companies.