The moderating role of adoption of ifrs between tax avoidance and SMEs performance in Nigeria

Abstract

The study examines the moderating role of International Financial Reporting Standards (IFRS) adoption between tax avoidance and the performance of Small and Medium Enterprises (SMEs) in Nigeria. This research explores whether adopting IFRS for SMEs mitigates the negative implications of tax avoidance, which may improve short-term performance but create long-term reputational and operational risks. Using a quantitative research strategy as well as a positivist research philosophy, the respondents were selected using a purposive sampling technique based on the relevance of their SME activities and readiness to participate in the study. A cross-sectional survey design was employed to obtain the data from 502 SME owners and managers in Nigeria. Questionnaires were administered via Google Forms, and descriptive statistics as well as Structural Equation Modeling (SEM) were used to test formulated hypotheses. The results show that tax avoidance has a positive influence on SMEs’ performance, but its benefits are offset by long-term challenges. IFRS adoption moderates this relationship by enhancing financial transparency and operational efficiency. The study reveals how IFRS adoption can improve financial reporting practices, thus promoting sustainable business growth in emerging economies like Nigeria. The study also shows that IFRS adoption is not just a compliance requirement but can also be a strategic tool to enhance SMEs’ operational performance and reduce risks associated with aggressive tax avoidance.