How does Debt Tax Shield Moderate Corporate Governance Mechanisms and Income Tax Compliance in Nigerian Listed Companies?

Abstract

This study investigated how debt tax shields (DTS) moderate the relationship between corporate governance mechanisms and income tax compliance in Nigerian listed firms. Amid persistent tax revenue shortfalls and evolving corporate governance reforms, understanding the interplay between governance structures and financial strategies has become crucial in emerging markets. Using a panel dataset of 92 non-financial firms listed on the Nigerian Exchange Group (NGX) from 2013 to 2022, the study adopts fixed-effects regression models to examine the direct and moderating effects of three key governance mechanisms: board gender diversity (BGD), audit committee size (BAC), and managerial ownership (MO) on income tax compliance, proxied by the effective tax rate (ETR). Findings reveal that BAC positively and significantly influences tax compliance in most model specifications, reinforcing the importance of board-level oversight. MO is significant in selected models, supporting the incentive alignment argument, though not consistently across all specifications. BGD does not exhibit a direct effect but demonstrates a significant positive interaction with DTS, suggesting that gender-diverse boards are more effective in leveraged firms where financial complexity heightens compliance risk. Among the control variables, profitability (ROA) and firm size (Fsize) consistently predict higher tax compliance, while leverage (LEV), DTS, and industry classification (IND) show no direct effects. The study concludes that governance mechanisms do not operate in isolation but are conditioned by firms' capital structures. Policymakers and regulators are advised to integrate governance reforms with financial risk profiling for enhanced compliance enforcement.