Effect of Financial Distress on Tax Planning: Evidence from Listed Consumer Goods Firms in Nigeria

Ama Kalu Ikwuo; Peter-Mario Efesiri EFENYUMI; Ezinne Uduma

doi:10.35877/454RI.qems4193

Quantitative Economics and Management Studies

Vol. 7 No. 2 (2026) · 2026-09-19

Articles | 2026-09-19

Effect of Financial Distress on Tax Planning: Evidence from Listed Consumer Goods Firms in Nigeria

Ama Kalu Ikwuo, Peter-Mario Efesiri EFENYUMI, Ezinne Uduma

Quantitative Economics and Management Studies, Vol. 7 No. 2 (2026) https://doi.org/10.35877/454RI.qems4193 Published: 2026-09-19

Get Permissions

Abstract

The study examined the effect of financial distress on tax planning among listed consumer goods firms in Nigeria. Financial distress was measured by Altman Z Score while effective tax rate measured tax planning. Ex-post facto research design was deployed. The population comprised twenty-one (21) listed consumer goods firms, out of which a purposive sample of sixteen was selected. Secondary data for the study were obtained from the annual reports of the firms from 2014 to 2023. Panel least square regression was used to test the hypothesis. It was found that financial distress influences Nigerian consumer goods firms to engage in tax planning that will significantly reduce their effective tax rate (? = 0.005646; p-value = 0.0000). As firms experience declining financial health, they may prioritize short-term financial relief through tax planning measures, potentially sacrificing long-term tax compliance or optimal financial strategies. Hence, financial managers should implement a comprehensive tax risk management framework by focusing on legitimate tax-saving techniques, such as tax credits, loss carryforwards, and tax-efficient capital structuring. The study is limited by its reliance on secondary data from annual reports, which may not fully capture all relevant tax planning behaviors and firm-specific factors that influence financial distress and effective tax rates. This study contributes to filling this gap by specifically addressing how financial distress, as measured by the Altman Z Score, influences the effective tax rates of Nigerian listed consumer goods firms, an area that has been under-explored in existing literature.

Keywords

Financial Distress Tax Planning Altman Z Score Effective Tax Rate

References

Adebimpe, O. I., & Mngueshima, G. L. (2024). Tax reforms and tax burden of listed consumer goods firms in Nigeria. Journal of Economics, Finance and Management Studies, 7(4), 2002-2016. https://doi.org/10.47191/jefms/v7-i4-25
Aggreh, M., Nworie, G. O., & Abiahu, M. F. C. (2022). Debt structure and financial performance: evidence from listed construction firms in Nigeria. Journal of Banking, 10(2), 145-195.
Alkurdi, A., Almarayeh, T., Bataineh, H., Al Amosh, H., & Khatib, S. F. (2024). Corporate profitability and effective tax rate: the moderating role of board gender diversity. Journal of Islamic Accounting and Business Research, 15(1), 153-171.
Appah, E., & Duoduo, G. (2024). Firm Attributes and Corporate Financial Distress of Listed Manufacturing Firms at The Nigeria Exchange Group. British Journal of Multidisciplinary and Advanced Studies, 5(1), 16-40.
Asif, M., Tiwari, S., Saxena, A., Chaturvedi, S., & Bhardwaj, S. (2024). A Study of Altman Z-Score Bankruptcy Model for Assessing Bankruptcy Risk of National Stock Exchange-Listed Companies. Proceedings on Engineering Sciences, 6(2), 789-806.
Bwala, I. F., & Ibrahim, M. (2024). Tax planning and the value of listed commercial banks in Nigeria. International Journal of Intellectual Discourse, 7(1), 167-180.
Chechet, I. L., & Olayiwola, A. B. (2014). Capital structure and profitability of Nigerian quoted firms: The agency cost theory perspective. American International Journal of Social Science, 3(1), 139-158.
Dang, V. C., & Tran, X. H. (2021). The impact of financial distress on tax avoidance: An empirical analysis of the Vietnamese listed companies. Cogent Business & Management, 8(1), 1953678.
De Mel, L. M. N. S., & Buddhika, H. J. R. (2025). The Impact of Financial Distress on Financial Performance: Evidence from Listed Licensed Finance Companies in Sri Lanka. Journal of Desk Research Review and Analysis, 2(2).
Dhamara, G. P., & Violita, E. S. (2017, August). The influence of financial distress and independence of board of commissioners on tax aggressiveness. In 6th International Accounting Conference (IAC 2017) (pp. 81-86). Atlantis Press.
Dobbin, F., & Jung, J. (2010). The misapplication of Mr. Michael Jensen: How agency theory brought down the economy and why it might again. In Markets on trial: The economic sociology of the US financial crisis: Part B (pp. 29-64). Emerald Group Publishing Limited.
Donohoe, M. P., Gale, B. T., & Mayberry, M. A. (2024). Shareholder perceptions of external tax advisors in corporate tax planning. Contemporary Accounting Research, 41(2), 1311-1345.
Elom, J., Nworie, G. O., Ugwu, J., Nwogo, J., & Nwele, A. (2025). Carbon Management Disclosure and Firm Value in the Nigerian Energy Market. Journal of Current Social Issues Studies, 2(7), 8-23.
Farooq, M., Hunjra, A. I., Ullah, S., & Al-Faryan, M. A. S. (2023). The determinants of financial distress cost: A case of emerging market. Cogent Economics & Finance, 11(1), 2186038.
Hashemi T. M., Tootian, E. S., & Soltanipanah, S. (2018). Investigating the effect of financial distress on tax avoidance during the global financial crisis in companies listed on Tehran stock exchange. International Journal of Finance & Managerial Accounting, 3(9), 41-51.
Ibida, N. J., Onuora, J. K., & Ofor, N. T. (2023). Assessing the Financial Distress Risk of Listed Non-Finance Firms in Nigeria: The CEO Dimension. Journal of Global Accounting, 9(3), 109-133.
Istrate, C. (2023). An overall effective tax rate for the Romanian companies listed on the regulated market of the Bucharest Stock Exchange. Journal of Accounting and Management Information Systems, 23(2), 297-319.
Jackson, A. M., & Maccarthy, M. I. T. (2023). TAX PLANNING STRATEGIES AND FINANCIAL PERFORMANCE OF LISTED PHARMACEUTICAL COMPANIES IN NIGERIA. BW Academic Journal, 16-16.
Jamiu, A. A., Lawal, S., Emmanuel, O. A., & Joseph, O. K. (2024). Financial distress as a determinant of corporate tax planning strategies of listed manufacturing companies in Nigeria. POLAC Management Review, 4(1)
Kamayanti, A., Qomariyah, N., Muwidha, M., & Ernawati, W. D. (2023). The significance of financial distress on tax avoidance compared to gender diversity and social responsibility: a study from Indonesia. Management & Accounting Review (MAR), 22(2), 401-419.
Martins, D. R. (2024). Evaluating financial distress in Portuguese firms: revisiting Altman's Z-score model (Doctoral dissertation).
Mattio, F. (2024). Altman Z-Score Indicators (Doctoral dissertation, Politecnico di Torino).
Maulana, F. (2024). Financial Distress Assessment Through Altman Z-Score. Journal of Economics and Business UBS, 13(1), 227-240.
Mavengere, K., & Gumede, P. (2024). Financial Distress Prediction Competence Of The Altman Z Score And Zmijewski Model: Evidence From Selected Zimbabwe Stock Exchange Firms. Journal of Economics Finance and Accounting, 11(1), 9-15.
Meckling, W. H., & Jensen, M. C. (1976). Theory of the Firm. Managerial Behavior, Agency Costs and Ownership Structure.
Mubarok, A. Z., Sunaryo, D., Pangesti, F. A., & Febrianto, H. G. (2024). DETERMINANTS OF CAPITAL STRUCTURE AND EFFECTIVE TAX RATE AS MODERATION VARIABLES. Jurnal Comparative: Ekonomi dan Bisnis, 6(1), 19-35.
Na’imah, S., Yanto, H., Baroroh, N., & Hajawiyah, A. (2023, November). The Influence of Capital Intensity, Sales Growth, Financial Distress, and Accounting Conservatism on Tax Avoidance: Empirical Study of Mining Companies Listed on the Indonesia Stock Exchange in 2018-2020. In Proceedings of the 5th International Conference on Economics, Business and Economic Education Science, ICE-BEES 2022, 9-10 August 2022, Semarang, Indonesia.
Nworie, G. O., & Obi, G. U. (2024). Audit firm physiognomies: A contrivance for mitigating corporate failures in listed consumer goods firms in Nigeria. IIARD International Journal of Economics, Business and Management, 10(5), 185-203.
Nworie, G.O., Okafor, T.G. & John-Akamelu, C.R. (2022). Firm-level traits and the adoption of computerised accounting information system among listed manufacturing firms in Nigeria. Journal of Global Accounting, 8(3), 128-148. Retrieved from https://journals.unizik.edu.ng/index.php/joga/article/view/1858
Omolekan, O., Ajayi, E., Kazeem-Bayo, O., & Babalola, H. (2022). Financial distress prediction in Nigerian oil and gas industry: a multivariate approach. Journal of Economic Research & Business Administration, 139(1), 151-162.
Orji, E. N., & John-Akamelu, C. R. (2023). Book Tax Differences and Financial Distress of Public Listed Consumer Goods Firms in Nigeria. Journal of Global Accounting, 9(1), 346-382.
Putri, A. A. G., & Yanto, H. (2024). THE DETERMINANT OF EFFECTIVE TAX RATE FOR CORPORATE TAXPAYERS. SAR (Soedirman Accounting Review): Journal of Accounting and Business, 9(01), 61-75.
Sadjiarto, A., Hartanto, S., & Octaviana, S. (2020). Analysis of the Effect of Business Strategy and Financial Distress on Tax Avoidance. Journal of Economics and Business, 3(1), 238-246.
Saputri, S. A., & Radianto, W. E. (2023). Can financial distress and good corporate governance influence tax aggressiveness. Enrichment: Journal of Management, 13(2), 1069-1077.
Takasanakeng, V. J. (2022). The Effect Of Financial Distress, Profit Management And Leverage On Tax Aggressiveness. Journal Research of Social Science, Economics, and Management, 2(4), 597-616.
Zainazor, Z., Nasir, N. E. M., Rashid, N., & Awang, Y. (2023). Financial Determinants of Corporate Tax Planning among Malaysian Listed Companies in Trading and Services. Indonesian Journal of Sustainability Accounting and Management, 7(S1), 80-88.

How to Cite

Ikwuo, A. K., EFENYUMI, P.-M. E., & Uduma, E. (2026). Effect of Financial Distress on Tax Planning: Evidence from Listed Consumer Goods Firms in Nigeria. Quantitative Economics and Management Studies, 7(2). https://doi.org/10.35877/454RI.qems4193