Empirical Investigation of Corporate Tax Incentives in Nigeria: Evidence from Panel Causality Tests (Published)
This study examines the effect of corporate tax on the market value of firms within the framework of the Modigliani and Miller modified work (1963). Using annual data from 1990 to 2016 of sixty (60) Nigerian quoted companies selected from different sectors of the country’s economy, we adopted the panel data methodology to carry out an inferential statistical analysis with the aid of the Eviews package(version 9.5). Based on the adjusted R-squared, approximately sixty (60) percent of total variation in market value of firms is due to corporate tax. There is also evidence showing a highly significant linear relationship between corporate tax and market value of firms as well as a strong feedback influence running from market value of firms to corporate tax. These findings agree with the conclusion by Modigliani and Miller (1963) that the tax shields levered firms enjoy significantly enhance their market value. It is also an indication that the Nigerian government is subsiding cost of debt for the companies operating in the country’s capital market.
Keywords: Corporate tax incentives, market value of firm, panel data and causality tests.