An Empirical Assessment of the Nexus between Agency Cost and Tax Compliance in Listed Firms in Nigeria

Abstract

Tax compliance in listed firms poses challenges due to the inherent agency problems within the corporate structure that require additional administrative costs, which the company must incur to put the agent in check to achieve organisation targets. This study examined the effect of agency costs on tax compliance in listed firms in Nigeria. A cross-sectional time-series research design was used. The study population was 155 firms listed on the Nigerian Exchange Group (NGX) as of 31^st December 2022. The study used 20 firms as a sample size using a purposive sampling technique. Data were obtained from the audited annual financial reports of the firms from 2013 to 2022. Panel data regression (PDR) was used to analyse the collected data. The findings revealed that monitoring costs measured by audit fees, audit specialisation, and ICT investment have an insignificant effect on tax compliance. In addition, the bonding costs measured by board remuneration and employee incentives showed an insignificant effect on tax compliance, while residual loss measured by Employee shareholding does not significantly affect tax compliance. The implication is that the agency cost incurred by the shareholders to reduce agency problems does not significantly affect their tax compliance. However, monitoring costs, bonding costs, and residual loss have negative and insignificant effects on tax compliance. The study concluded that the costs of the agency have no significant effect on tax compliance in listed firms in Nigeria. Firms should explore ways to enhance the effectiveness of monitoring, bonding and residual activities to ensure better alignment with tax compliance objectives.