Companies' Financial Decisions Under the Distributed Profit Taxation Regime of Estonia
This paper empirically analyzes companies' capital structure and dividend decisions under distributed profit taxation (DPT), Estonia's corporate taxation regime since 2000. The sample covers 26,000 observations of Estonian companies from 1995 to 2004. The results show that the DPT system has led companies to pay less in dividends and retain more profits. Simultaneously, the importance of external financing in companies' total capital has decreased. The undistributed profits appear to be partially retained as surplus cash, instead of being reinvested into long-term productive assets. DPT seems to support companies' liquidity and sustainability; however, the allocation of funds is potentially inefficient.
Volume (Year): 45 (2009)
Issue (Month): 4 (July)
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