Financial Reporting Practices, SME Performance, and Enterprise Tax Compliance in Ibadan, Oyo State, Nigeria
Author
Olanrewaju Ayodele Fasola, Olufemi Akinloye Oyedare
Abstract
Small and medium-sized enterprises (SMEs) drive economic growth across emerging markets, yet informal record-keeping restricts managerial decision-making and limits sub-national tax compliance. While enterprise longevity is often assumed to foster fiscal alignment, empirical evidence on whether internal accounting discipline outweighs operational maturity remains scarce. Consequently, this study investigates the effect of financial reporting practices (FRP) on SME performance (SMEP) and enterprise tax compliance (ETC) in Ibadan Metropolis, Oyo State, Nigeria. The study is grounded in the Resource-Based View and Fiscal Exchange Theory. Using a multi-stage cluster sampling technique, primary data were collected from 403 validated SME owner-managers across trading, services, and manufacturing sub-sectors. Data quality was verified via Confirmatory Factor Analysis and Harman’s single-factor test. Hypotheses were tested using Ordinary Least Squares multiple regression specified with heteroscedasticity-consistent robust standard errors (HC3). The empirical results demonstrate that FRP exerts a strong, statistically significant positive effect on both SME performance (β=0.567,t=13.997,p<0.001) and enterprise tax compliance (β=0.440,t=9.925,p<0.001), supporting both research hypotheses. FRP accounted for 68.7% of variance in performance (R2=0.687) and 39.3% in tax compliance (R2=0.393). Crucially, while firm age significantly predicts enterprise performance (B=0.257,p<0.001), it exerts no statistically significant effect on tax compliance (B=−0.025,p=0.592) when controlling for reporting practices. This study concludes that organizational longevity alone does not drive fiscal compliance; structured accounting discipline is the primary internal driver. It is recommended that the Oyo State Ministry of Trade and professional accounting bodies (ICAN/ANAN) institute cluster-based bookkeeping workshops and simplified micro-reporting templates. Furthermore, the Oyo State Internal Revenue Service should establish incentivized compliance pathways and digital record-keeping tools for compliant SMEs.
Keywords
Access to finance, SME performance, Tax compliance, Firm age asymmetry, Fiscal Exchange Theory
Full Text:
References
Akintunde, A. J. (2021). Effect of financial reporting quality on the performance of the Nigerian capital market. Bingham University Journal of Accounting and Business, 7(1), 402–412.
Alabede, J. O., Ariffin, Z. Z., & Idris, K. M. (2011). Financial literacy and tax compliance in Nigeria: A survey of small and medium enterprises (SMEs). Journal of Finance and Accounting, 3(4), 208–216.
Alm, J., Jackson, B. R., & McKee, M. (1992). Institutional uncertainty and taxpayer compliance. American Economic Review, 82(4), 1018–1026.
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120. https://doi.org/10.1177/014920639101700108
Ezeagba, C. (2017). Financial reporting in small and medium enterprises (SMEs) in Nigeria: Challenges and options. International Journal of Academic Research in Accounting, Finance and Management Sciences, 7(1), 1–10. https://doi.org/10.6007/ijarafms/v7-i1/2534
Freeman, R. E. (1984). Strategic management: A stakeholder approach. Pitman.
Garba, S. S. (2019). Taxation policy factors associated with the perfomance of small scale enterprises in Niger State, Nigeria [Master's thesis, Kwara State University].
Igbojioyibo, R. P. (2024). Analyzing financial risk management practices in small and medium enterprises: A focus on risk identification and mitigation. Asian Journal of Advanced Research and Reports, 18(1), 23–35. https://doi.org/10.9734/ajarr/2024/v18i12811
Ihenyen, C. J., & Ekpoamumemi, T. H. (2024). Comprehensive budgeting frameworks and financial performance of SMEs in Bayelsa State, Nigeria. IOSR Journal of Economics and Finance, 15(5), 1–9. https://doi.org/10.9790/5933-1505040109
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405X(76)90026-X
Kline, R. B. (2015). Principles and practice of structural equation modeling (4th ed.). Guilford Press.
Mesioye, O., & Bakare, I. A. (2024). Evaluating financial reporting quality: Metrics, challenges, and impact on decision-making. International Journal of Research and Innovation in Social Science, 5(10), 1144–1156.
Mishral, K., & Celestine, A. (2025). Information asymmetry and regulatory compliance in emerging market small enterprises. Journal of Accounting and Public Policy, 44(2), 102–118.
Muneer, S., Ahmad, R. A., & Ali, A. (2017). Impact of financial management practices on SMEs' profitability with the moderating role of agency cost. Information Management and Business Review, 9(1), 23–30.
National Bureau of Statistics. (2019). Micro, small and medium enterprises (MSME) national survey 2017 report. Small and Medium Enterprises Development Agency of Nigeria.
Nunnally, J. C., & Bernstein, I. H. (1994). Psychometric theory (3rd ed.). McGraw-Hill.
Olaoye, C. O., & Ekundayo, A. Y. (2018). Effects of tax audit on tax compliance in Ekiti State, Nigeria. European Journal of Accounting, Auditing and Finance Research, 6(5), 13–19.
Palil, M. R., & Mustapha, A. F. (2011). Factors affecting tax compliance behaviour in the self-assessment system. African Journal of Business Management, 5(33), 12864–12872. https://doi.org/10.5897/AJBM11.1742