Political Connections and Tax Aggressiveness of Listed Firms in Nigeria

This study investigates the relationship between political connections and tax aggressiveness among listed firms in Nigeria, drawing on data from 151 non-financial and financial firms listed on the Nigerian Exchange Group (NGX) over the period 2010–2024. Political connections remain a pervasive feature of the Nigerian corporate landscape, yet their influence on firms' tax behavior has received limited empirical scrutiny. Anchored in political cost theory, rent-seeking theory, and agency theory, this study hypothesizes that politically connected firms exhibit higher levels of tax aggressiveness compared to their non-connected counterparts. Tax aggressiveness is measured using the effective tax rate (ETR), cash effective tax rate (CETR), and book-tax differences (BTD). Political connections are operationalized as a binary variable capturing board-level and ownership-level affiliations with political officeholders or party structures. The study employs an ex-post facto research design and utilizes panel regression techniques—including fixed effects, random effects, and system generalized method of moments (GMM)—to address endogeneity concerns. Control variables include firm size, firm age, board size, board independence, industry type, financial leverage, and ownership structure. Post-estimation diagnostics confirm the robustness of the findings. The results reveal that political connections are significantly and positively associated with tax aggressiveness, indicating that politically connected firms in Nigeria pay proportionally less in taxes relative to their pre-tax income. The relationship holds after controlling for firm-specific and governance characteristics. These findings carry substantial implications for tax policy, corporate governance reform, and regulatory oversight in developing economies. This paper contributes to knowledge by extending the political connections–tax aggressiveness nexus to the Nigerian institutional context, offering a multi-measure approach to tax aggressiveness, and providing evidence that spans a fifteen-year panel window encompassing significant regulatory shifts in Nigeria's corporate and fiscal environment.