Tax Optimization Approach and Financial Distress Cost:

A Study of Non-Finance Listed Firms in Nigeria

Abstract

This study examined the effect of corporate tax optimization on the financial distress cost of listed non-finance firms in Nigeria. The specific objectives was to ascertain the effect of cash effective tax rates, tax efficiency. The study, guided by these specific objectives, employed an ex-post facto research design on a population of forty listed non-finance firms, from which a sample size of thirty was purposively selected based on complete data from 2015 to 2024. Secondary data were obtained from annual reports and NGX publications, forming a ten-year balanced panel. The hypotheses were tested using panel regression techniques, and the fixed-effect model was chosen through the Hausman specification test after conducting the required diagnostic checks. The findings showed that: cash effective tax optimization has a positive but non-significant effect on financial distress cost (β = 0.006118; p = 0.4383); tax efficiency optimization has a negative but non-significant effect on financial distress cost (β = –0.000424; p = 0.8782). In conclusion, tax-related behaviors firms adopt carry structural consequences that extend beyond statutory obligations and reach into firms’ financial resilience. The study recommended that Chief financial officers (CFOs) of listed non-finance firms should strategically increase the use of debt-related tax shields where feasible, ensuring that interest-based deductions are leveraged optimally to strengthen liquidity, reduce financing costs, and mitigate the risk of financial distress.