Environmental Disclosure and Tax Avoidance in Developing Economies: Moderating Role of Audit Firm Type in Nigeria’s Manufacturing Sector

Abstract

Arising from the social and economic consequence of tax avoidance, the past few decades have witnessed increased attention on tax avoidance and the modalities for avoiding its practice. Thus, this study examined the effect of environmental disclosure on tax avoidance. The aim is to ascertain whether firm environmental disclosure is a technique of masking tax avoidance or not, and the role of external auditor in shaping the relationship. Data of 31 listed manufacturing firms from 2013 to 2022 were aggregated and generalised method of moment was explored to examine the dynamic interaction between environmental disclosure and tax avoidance. We find that firms disclosing environmental information are less likely to engage in tax avoidance, suggesting that environmental disclosure serves as a legitimating tool for avoiding unethical practices such as tax avoidance. However, further finding shows that external audit firm type makes environmental disclosure a tool for engaging in tax avoidance. The study concludes that environmental disclosure is a tool for mitigating tax avoidance. It is recommended that government should take an appropriate policy measures through reducing loopholes in the tax system so as to reduce tax avoidance particularly in the environmentally disclosing firms. It is also recommended that government should give

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