Corporate Tax Avoidance, Institutional Quality, and Firm Performance in Nigeria

Corporate tax avoidance represents a pervasive phenomenon in emerging markets, shaped by the interaction between firm-level incentives, institutional environment quality, and enforcement capacity of revenue authorities. This study investigates the determinants of corporate tax avoidance and its bidirectional relationship with firm performance in Nigerian listed companies, with institutional quality as a moderating variable. Secondary data from audited financial statements and governance disclosures of 80 firms across five sectors listed on the Nigerian Exchange Group are assembled for the period 2016 to 2022. Tax avoidance is measured using book-tax differences, effective tax rate deviations, and unrecognised tax benefit proxies. Firm performance is assessed through return on assets, earnings quality, and market-to-book value. Institutional quality is measured at the state level using composite indices from the National Bureau of Statistics governance surveys and the World Bank Doing Business indicators. The study employs a two-stage least squares regression to address endogeneity in the tax avoidance-performance relationship and a moderation analysis to test the institutional quality effect. The theoretical framework draws on optimal tax avoidance theory, the rent extraction view of tax avoidance, and the institutional complementarity literature. The study evaluates whether the Finance Act amendments of 2020 and 2023 have altered the tax avoidance landscape for Nigerian firms. Existing literature identifies significant variation in tax avoidance intensity across Nigerian sectors, but the moderating role of sub-national institutional quality has not been examined. Findings carry implications for the Federal Inland Revenue Service's risk-based audit strategy and for corporate governance reform advocates. Keywords: corporate tax avoidance, institutional quality, firm performance, Nigeria, effective tax rate