Moderating Effect of Firm Size on the Relationship between Leverage and Deferred Tax Assets: Evidence from Sub-Saharan African Manufacturing Firms

Abstract

This study examines the moderating effect of firm size on the relationship between leverage and deferred tax assets among listed manufacturing firms in Sub-Saharan Africa. Drawing on Positive Accounting Theory, Agency Theory, and the Resource-Based View, the study investigates how financial structure and organisational characteristics jointly influence deferred taxation under the International Financial Reporting Standards (IFRS). The research adopts an ex post facto design using panel data from 186 manufacturing firms across fourteen Sub-Saharan African countries between 2012 and 2022. Deferred tax assets, leverage, and firm size were measured relative to total assets, while profitability, asset tangibility, external auditor type, and board size were included as control variables. A Tobit regression model was employed to address the censored nature of deferred tax data. The results reveal that leverage and firm size both have significant positive effects on deferred tax assets, and that firm size moderates this relationship, amplifying the influence of leverage on deferred tax recognition. The findings highlight that larger firms possess superior resources and reporting capabilities that enhance deferred tax management, whereas smaller firms often lack such capacity. The study contributes to literature by providing empirical evidence from an under-researched region and underscores the need for stronger IFRS enforcement and capacity building across emerging African markets. Despite these contributions, the study is limited to manufacturing firms, which may not fully capture the dynamics of deferred taxation in other sectors with different capital structures and tax environments. Moreover, variations in disclosure practices across countries may have constrained the comparability and precision of firm-level deferred tax data.