Companies’ Financial Decisions under the Distributed Profit Taxation Regime of Estonia
AbstractThis paper presents an empirical analysis of companies’ capital structure and dividend decisions under distributed profit taxation (DPT), the corporate taxation regime of Estonia since 2000. The survey is based on the financial information available from the Estonian Commercial Registry in respect of a sample of 51 thousand Estonian companies over a ten-year period. For the purposes of cross-country comparison, the Amadeus database information of 0.7 million companies from the European Union countries is used. The results give support to the hypothesis that the share of external financing in total capital of Estonian companies is lower in the conditions of DPT in comparison to that under the traditional gross profit taxation system. The DPT system has led companies to distribute lower portions of profit as dividends. The undistributed profits appear to be largely retained as surplus cash, instead of being reinvested into long term productive assets. DPT appears to have a positive impact on companies’ liquidity and sustainability, however the downside being the allocation of available funds into potentially inefficient investments. The results of the study may lead to discussions on introducing a similar system in other jurisdictions or on modifying the corporate taxation principles in Estonia.
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Bibliographic InfoPaper provided by Tallinn School of Economics and Business Administration, Tallinn University of Technology in its series Working Papers with number 155.
Date of creation: 2007
Date of revision:
Publication status: Published in Working Papers in Economics.School of Economics and Business Administration,Tallinn University of Technology (TUTWPE), Pages 5-19
capital structure; dividend policy; corporate taxation;
Find related papers by JEL classification:
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
- G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
- K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-12-15 (All new papers)
- NEP-EEC-2007-12-15 (European Economics)
- NEP-LAW-2007-12-15 (Law & Economics)
- NEP-TRA-2007-12-15 (Transition Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Companies Financial Decisions under the Distributed Profit Taxation Regime of Estonia
by admin in antti on 2012-06-17 13:42:19
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