Tax Aggressiveness, Corporate Governance and Audit fees: A Study of Listed Firms in Nigeria

The concept of audit fee has received immense empirical investigation in the literature both in the developed and developing countries. However, these vast studies have not sufficiently explored the relation of the concept with tax aggressiveness and corporate governance. This study therefore sought to provide empirical evidence as to whether tax aggressiveness and corporate governance mechanisms are significantly associated with audit fee among listed firms in Nigeria. Leaning on the agency and stakeholder theories, the study examined the measures of tax aggressiveness of effective tax rate and cash tax rate as well as corporate governance mechanisms of board gender diversity, audit committee diligence, board independence and ownership concentration. The two measures of tax aggressiveness and audit fee were subsequently interacted with moderating corporate governance variable of ownership concentration, the essence of which was to assess ownership concentration and the relationship between tax aggressiveness and audit fee. A sample of one hundred and seven (107) firms from the entire firms quoted on the Nigerian Stock Exchange as at December, 2018 was utilised. Data were sourced solely from annual financial statements of the studied firms over a ten-year period (2009 to 2018). The panel regression technique, with preference for the random effect model based on the outcome of the Hausman test, was employed to estimate the balanced panel data. The results of the study showed that cash tax rate, audit committee diligence and board independence all exert positive and significant effect on audit fees. Although not statistically significant, the results of this study showed that tax aggressiveness and corporate governance (ownership concentration) have a combined negative effect on the audit fees payable to external auditors by the listed firms in Nigeria. In the light of the findings, the study therefore recommended block ownership, instead of disperse share ownership, as it would give opportunity for effective monitoring of the activities of management. This would help reduce the tendency for opportunistic behaviour, such as tax aggressiveness. The study also recommended an increase in both board independence and frequency of audit committee’s meetings so as to enhance their oversight functions, and promote quality financial reporting and audit.