Corporate Tax Avoidance Moderated by Institutional Ownership and Firm Performance

This study examines the effect of corporate tax avoidance on firm performance in Nigeria and investigates the moderating role of institutional ownership. Using an unbalanced panel of 152 publicly listed firms over the period 2015–2024, the study employs fixed and random effects panel regression techniques with robust standard errors clustered at the firm level. Firm performance is measured using both accounting-based and market-based indicators, return on assets and Tobin’s Q. Panel unit root tests confirm that all variables are stationary at levels and suitable for panel estimation. The results from the direct effects model show that corporate tax avoidance has a statistically significant negative effect on both measures of firm performance, while institutional ownership exerts a positive and significant influence. The moderated regression analysis reveals a positive and significant interaction between corporate tax avoidance and institutional ownership, indicating that institutional investors weaken the adverse impact of tax avoidance on firm performance. Post-estimation diagnostics confirm model adequacy, with no multicollinearity concerns, while heteroskedasticity and autocorrelation are appropriately addressed through firm-level clustered robust errors. The findings highlight the importance of institutional ownership as an effective governance mechanism that disciplines managerial tax behavior and promotes value-enhancing strategies. The study provides policy-relevant evidence for regulators, investors, and corporate boards on the need to strengthen institutional monitoring to improve firm performance in emerging markets.