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Companies' Financial Decisions Under the Distributed Profit Taxation Regime of Estonia

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  • Aaro Hazak

Abstract

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.

Suggested Citation

  • Aaro Hazak, 2009. "Companies' Financial Decisions Under the Distributed Profit Taxation Regime of Estonia," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 45(4), pages 4-12, July.
    • Handle: RePEc:mes:emfitr:v:45:y:2009:i:4:p:4-12
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    Citations

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    Cited by:

    1. Anne Lauringson, 2011. "Unemployment Benefits In A Period Of Crisis: The Effect On Unemployment Duration," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 82, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    2. Masso, Jaan & Meriküll, Jaanika & Vahter, Priit, 2013. "Shift from gross profit taxation to distributed profit taxation: Are there effects on firms?," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1092-1105.
    3. Jaan Masso & Jaanika Meriküll & Priit Vahter, 2011. "Gross Profit Taxation Versus Distributed Profit Taxation And Firm Performance: Effects Of Estonia’S Corporate Income Tax Reform," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 81, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    4. Kadri Männasoo & Heili Hein, 2017. "Are R&D companies credit-constrained? Credit frictions during and post-crisis," TUT Economic Research Series 29, Department of Finance and Economics, Tallinn University of Technology.
    5. Raul Ruubel, 2021. "Time Dimensions of Job Autonomy in Estonian R&D Institutions," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 12(3), pages 1079-1099, September.
    6. Kadri Männasoo & Heili Hein, 2017. "Capital investments and financing structure: Are R&D companies different?," TUT Economic Research Series 26, Department of Finance and Economics, Tallinn University of Technology.
    7. Egert Juuse & Rainer Kattel, 2014. "Financialisation and the Financial and Economic Crises: The Case of Estonia," FESSUD studies fstudy20, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    8. Kantšukov Mark & Sander Priit, 2022. "Optimal Holding Period of an Investment Property Under Different Systems of Income Taxation – An Individual Investor’s Perspective," Real Estate Management and Valuation, Sciendo, vol. 30(3), pages 12-29, September.
    9. Priit Sander & Mark Kantšukov, 2009. "Effect of Corporate Taxation System on Profitability and Market Ratios – the Case of ROE and P/B Ratios," Research in Economics and Business: Central and Eastern Europe, Tallinn School of Economics and Business Administration, Tallinn University of Technology, vol. 1(2).
    10. Kadri Männasoo & Heili Hein, 2017. "Learning from abroad: Export versus foreign ownership," TUT Economic Research Series 36, Department of Finance and Economics, Tallinn University of Technology.
    11. Mari Avarmaa & Aaro Hazak & Kadri Männasoo, 2011. "Capital structure formation in multinational and local companies in the Baltic States," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 11(1), pages 125-146, July.
    12. Heili Hein & Kadri Männasoo, 2017. "Are business obstacles different for R&D companies?," TUT Economic Research Series 33, Department of Finance and Economics, Tallinn University of Technology.
    13. Alessandra Amendola & Marinella Boccia & Gianluca Mele & Luca Sensini, 2020. "Fiscal Policies and Performance: Evidence from Dominican Republic firms," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 10(5), pages 1-16.
    14. Karsten Staehr, 2014. "Corporate Income Taxation in Estonia. Is It Time to Abandon Dividend Taxation?," TUT Economic Research Series 9, Department of Finance and Economics, Tallinn University of Technology.
    15. Bizņa Valentīna & Jurušs Māris & Laizāns Tālis & Šnikvalds Roberts, 2018. "Assessment of Impact of Corporate Income Tax Suspension on Financial Performance of Businesses," Economics and Business, Sciendo, vol. 32(1), pages 172-181, September.

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