Tax Avoidance and Cost of Capital of Listed Manufacturing Companies in Nigeria: The Moderating Effect of Ownership Structure

This study investigates the impact of tax avoidance (measured by effective tax rate, book-tax difference, and cash tax rate) on the cost of capital, proxied by cost of equity, cost of debt, and weighted average cost of capital (WACC), of listed manufacturing companies in Nigeria. It further explores the moderating role of ownership structure (institutional, managerial, and concentrated ownership) within the agency and information asymmetry frameworks. Using a sample of 41 listed manufacturing firms over 2011–2022, the study employed descriptive statistics, correlation, and panel corrected standard error (PCSE) regression analyses. Findings reveal that tax avoidance significantly increases the cost of capital, implying that firms engaging more in tax avoidance face higher financing costs. Institutional ownership showed a positive but insignificant relationship with cost of capital, while managerial and concentrated ownership significantly increased cost of debt and WACC, but negatively and insignificantly affected cost of equity. After moderation, ownership structure demonstrated a significant moderating effect on the link between tax avoidance and cost of capital. The study concludes that tax avoidance meaningfully impacts financing costs of Nigerian manufacturing companies and that ownership structure further shapes this relationship. It recommends that firms adopt balanced tax management strategies to optimize tax savings while maintaining competitive financing costs. Companies should also assess their ownership structures in relation to financing outcomes. Additionally, regulatory bodies such as the Securities and Exchange Commission (SEC) and Federal Inland Revenue Service (FIRS) should enforce transparency and governance standards. Strong corporate governance and disclosure practices are essential to reduce risks tied to tax avoidance and sustain investor and creditor confidence.