PurposeThe purpose of this paper is to establish whether inefficiency in a tax system and the likely difficulty in resolving tax matters can reduce the appeal for tax shield as incentive for debt financing, and by so doing exacerbate the cases of tax fraud.Design/methodology/approachA review approach/theoretical approach is adopted in the paper, where, in addition to reviewing literature on the relationship between tax incentives and corporate financing, the paper examines the structure of the Nigerian tax system, the gaps, and some pending tax cases involving foreign firms in Nigeria. Based on some theoretical judgments, efforts were made to link the rising cases of tax frauds to the dwindling appeal for tax shield as an incentive for the use of debt.FindingsThe study reveals that, as in the case of Nigeria, an environment of multiple tax system reduces incentives to pay tax or for voluntary compliance; that the exclusion of crucial non‐debt tax shelters such as depreciation, heightens pressure on the use of debt‐based tax shelters; and that controversies on deductibility make it difficult to distinguish between criminal and civil proceedings in tax cases.Research limitations/implicationsThe paper is only theoretical. The number of cases captured is very limited. However, the issue of tax frauds among corporate entities in the country remains very popular.Originality/valueThe paper is the first to examine the likelihood of an inefficient tax environment to reduce the appeal of tax shield as an incentive to debt financing.

The main objective of this study is to investigate whether corporate nationality and degree of foreign control influence capital structure decisions in a developing economy. The study makes use of eighteen-year time series data from 70 non-financial quoted firms in Nigeria. Using fixed effects panel regression models, it is found that though firm nationality and the degree of foreign control are significant determinants of corporate financing decisions in the country, they are not as important as acclaimed by local corporate stakeholders who champion discriminatory polcies in favour of indigenous firms. Thus, there is need for the Nigerian government to devote more attention in improving policy frameworks on areas such as corporate tax, corporate governance and bankruptcy practices, which are found by previous studies to be very important determinants of firm’s access to long-term investment capital.