THIN CAPITALISATION AND FINANCIAL PERFORMANCE OF LISTED MULTINATIONAL FIRMS IN NIGERIA
Taxation constitutes a significant cost that influences corporate financial performance and wealth maximization objectives. In response, multinational firms often engage in tax planning strategies such as thin capitalization to reduce tax burdens. This study examines the effect of thin capitalization on the financial performance of listed multinational firms in Nigeria. Anchored on tax planning theory, the study adopted an ex post facto research design. The population comprised all multinational firms listed on the Nigerian Exchange Group as of 31st December 2024. Using purposive and filtering sampling techniques, secondary data were extracted from audited annual reports of selected firms covering the period 2015 to 2024. The Random Effect regression was employed after relevant diagnostic tests to estimate the relationships. The results reveal a significant positive relationship between related-party debt-to-equity ratio and return on assets (ROA). Conversely, debt-to-total assets and interest-to-revenue ratios have a significant negative effect on ROA. However, debt-to-equity ratio and effective tax rate showed no significant relationship with ROA. The findings suggest that profitability influences thin capitalization practices among Nigerian listed multinational firms. The study recommends that Nigerian listed multinational firms can strategically leverage related-party financing to enhance profitability, while ensuring compliance with CBN and FIRS thin capitalization regulations to avoid regulatory penalties. This study provides current evidence from Nigeria on how specific thin capitalization proxies differentially affect financial performance, offering insights for policymakers, regulators, and corporate managers in emerging economies.
Thin Capitalization, Financial Performance, Multinational Firms.