MODERATING EFFECT OF COMPANY INCOME TAX ON THE RELATIONSHIP BETWEEN CAPITAL STRUCTURE AND FINANCIAL PERFORMANCE OF LISTED MULTINATIONAL COMPANIES IN NIGERIA

Abstract

This study examined the effect of capital structure on the financial performance of quoted multinational companies in Nigeria, with a particular focus on the moderating role of tax incentives and relief. Specifically, it assessed how short-term debt, common equity, and preferred equity influence financial performance, measured by return on assets (ROA), and whether tax incentives modify these relationships. The study adopted a quantitative approach using secondary panel data from 160 firm-year observations covering selected multinational companies listed on the Nigerian Exchange Group (NGX). A random effects regression model was employed to analyze the data, incorporating interaction terms to capture moderation. The findings revealed that short-term debt had a significant negative effect on financial performance, while both common equity and preferred equity exhibited significant positive effects. Tax incentives and relief were found to significantly moderate the relationship between common equity and financial performance, enhancing its positive impact. However, the moderating effect of tax incentives on the relationship between preferred equity and financial performance was statistically insignificant. Additionally, tax incentives failed to reverse the negative impact of short-term debt on performance. The study concludes that optimal capital structure decisions are critical to enhancing firm profitability, and that equity financing especially when supported by tax relief—can serve as a strategic tool for improving financial outcomes. It recommends that firms reduce reliance on short-term debt, leverage tax incentives effectively in their equity financing strategies, and that policymakers enhance the accessibility and efficiency of tax incentive programs for multinational corporations in Nigeria.