Corporate Governance, Financial Constraints, and Tax Avoidance: Evidence from Listed Firms in Nigeria (2011–2025)

This study investigates the effect of corporate governance on tax avoidance and examines whether financial constraints moderate that relationship among listed firms in Nigeria. Using an ex-post facto research design and an unbalanced panel dataset of 148 firms listed on the Nigerian Exchange Group (NGX) spanning 2011 to 2025 — yielding a maximum of 2,220 firm-year observations — we construct a composite Corporate Governance Index (CGI) capturing board size, board independence, CEO duality, audit committee effectiveness, and ownership concentration. Tax avoidance is proxied by the book-tax difference (BTD) and supplemented by the effective tax rate (ETR). Financial constraints are operationalised using the Kaplan–Zingales (KZ) Index. The study incorporates eleven control variables — firm size, leverage, liquidity, asset tangibility, sales growth, firm age, earnings volatility, natural risk management, industry dummies, risk exposure, and year dummies — to isolate the governance effect. Estimation proceeds through pooled OLS, fixed-effects (FE), and random-effects (RE) panel regressions, with the Hausman test confirming FE superiority. Diagnostic tests for heteroskedasticity, serial correlation, and cross-sectional dependence are addressed via panel-corrected standard errors (PCSE). The results reveal that stronger corporate governance significantly reduces tax avoidance, while financial constraints amplify it. Crucially, the interaction term between CGI and FC is negative and significant, indicating that financial constraints attenuate the tax-suppressing effect of governance — firms that are both well-governed and financially constrained engage in more tax avoidance relative to unconstrained peers. These findings carry profound implications for regulators, boards, and policymakers in emerging markets.