Determinants of Debt Tax Shield of non-Financial Firms in Nigeria

This study investigated the determinants of tax shields among non-financial firms in Nigeria using panel data covering 11 listed firms from 2013 to 2023, yielding 121 firm-year observations. Focusing on the debt tax shield as the core dependent variable, the study incorporates profitability and firm-specific characteristics as explanatory factors. Unit root tests using the Phillips–Perron Fisher panel procedure indicate stationarity at level for debt tax shield alongside the selected variables measuring firm characteristics. The Pedroni cointegration test, particularly the Phillips–Perron group statistic, confirms the existence of a long-run relationship among the variables. Results from pooled OLS, fixed-effects, and random-effects models are consistent with theoretical expectations, with firm size exerting a statistically significant positive effect on the debt tax shield under both pooled OLS and random-effects estimations. Robustness diagnostics including variance inflation factor, heteroscedasticity tests, and the Hausman specification test validate the reliability of the findings. Granger causality results further show a bi-directional relationship running from firm size to the debt tax shield. The study recommends among others that managers should carefully assess the optimal level of debt in relation to firm size and operational capacity to maximize tax benefits without overexposing the firm to financial risk