EARNINGS MANAGEMENT AND TAX AGGRESSIVENESS OF LISTED MANUFACTURING FIRMS IN NIGERIA: MODERATING ROLE OF AUDIT QUALITY

Abstract

Tax aggressiveness remains a persistent challenge for firms in developing economies, where weak institutional controls often enable opportunistic financial reporting. This study examines the moderating role of audit quality (AQ) in the relationship between earnings management (EM) and tax aggressiveness (TAX_AGGR) among listed manufacturing firms in Nigeria. The objective is to determine whether high-quality audits can constrain or influence the extent to which earnings management affects firms’ tax behavior. Using a panel dataset of listed manufacturing firms from 2015–2024, the study employed Pearson correlation and multiple regression analysis with STATA 26 to test three hypotheses grounded in Agency Theory and Positive Accounting Theory. Findings reveal that earnings management has a significant negative effect on tax aggressiveness, indicating that firms engaging in accrual manipulation tend to pay lower effective tax rates. Audit quality also shows a significant negative relationship with tax aggressiveness, confirming that high-quality auditors promote compliance and transparency. Furthermore, the interaction term (EM × AQ) is positive and significant, establishing that audit quality moderates the relationship between earnings management and tax aggressiveness. The study concludes that audit quality not only mitigates aggressive tax practices but also enhances the credibility of financial reporting. It recommends stricter audit regulations, mandatory auditor rotation, and stronger internal audit systems to improve corporate governance and tax compliance.