Moderating Impact Of Financial Performance On Capital Intensity Strategy Of Tax Avoidance And Corporate Liquidity
George Tamunotonye Peters
Rivers State University
Aledare S. Ayodeji
Department of Accountancy, Faculty of Management Sciences, Rivers State University, Port Harcourt, Nigeria
Abstract
There is a general misconception of interpreting the implicit inverse relationship between capital allowance size and tax liability to misjudge capital intensity strategy of tax avoidance as panacea for corporate liquidity. This paper investigated the influence of capital intensity strategy of tax avoidance, and the moderating impact of profitability on corporate liquidity of quoted consumer-goods manufacturing firms in Nigeria. The population of the study consisted of twenty-one (21) listed Consumer goods manufacturing firms in Nigeria. Data for the study were generated from the companies’ annual reports and statements of account for an eight –year period: 2013-2020. The stated hypotheses were statistically tested using fixed-effect regression technique. Capital intensity was measured by the ratio of non-current assets to total assets while corporate liquidity was operationalized by acid test ratio. Our findings revealed that Capital intensity was significantly and negatively related with corporate liquidity. Result also showed that profitability significantly moderate the relationship between capital intensity and liquidity. It was therefore concluded that capital intensity is only viable for loss sustaining firms, but not attractive for firms operating in profitable bandwidth. Accordingly, we recommended that firms in profit region should seek alternative tax avoidance strategy different from capital intensity while loss sustaining firms should adopt capital intensity option.
Keywords: Corporate Tax Avoidance, Corporate Liquidity, Capital Intensity, Profitability, Nigeria