CompaniesÃ Financial Decisions under the Distributed Profit Taxation Regime of Estonia
This paper presents an empirical analysis of companiesÃ 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 companiesÃ 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.
|Date of creation:||2007|
|Publication status:||Published in Working Papers in Economics.School of Economics and Business Administration,Tallinn University of Technology (TUTWPE), Pages 5-19|
|Contact details of provider:|| Postal: Kopli tn. 101, 11712 Tallinn|
Phone: +(372)620 3535
Fax: +(372)620 3946
Web page: http://majandus.ttu.ee
More information through EDIRC
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.:
- Allen, Franklin & Michaely, Roni, 2003.
Handbook of the Economics of Finance,
in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 7, pages 337-429
- Michael Funke, 2002. "Determining Taxation and Investment Impacts of Estonia's 2000 Income Tax Reform," Finnish Economic Papers, Finnish Economic Association, vol. 15(2), pages 102-109, Autumn.
- Michael Funke & Holger Strulik, 2003.
"Taxation, Growth and Welfare: Dynamic Effects of Estonia´s 2000 Income Tax Act,"
Quantitative Macroeconomics Working Papers
20304, Hamburg University, Department of Economics.
- Michael Funke & Holger Strulik, 2006. "Taxation, Growth and Welfare: Dynamic Effects of Estonia's 2000 Income Tax Act," Finnish Economic Papers, Finnish Economic Association, vol. 19(1), pages 25-38, Spring.
- Michael Funke & Holger Strulik, 2004. "Taxation, growth and welfare: Dynamic effects of Estonia’s 2000 income tax act," Macroeconomics 0401009, EconWPA.
- Funke, Michael & Strulik, Holger, 2003. "Taxation, growth and welfare : Dynamic effects of Estonia's 2000 income tax act," BOFIT Discussion Papers 10/2003, Bank of Finland, Institute for Economies in Transition.
- Michael Funke & Holger Strulik, 2006. "Taxation, Growth and Welfare: Dynamic Effects of Estonia´s 2000 Income Tax Act," Quantitative Macroeconomics Working Papers 20611, Hamburg University, Department of Economics.
- Sanjiva Prasad & Christopher J. Green & Victor Murinde, 2001.
"Company Financing, Capital Structure, and Ownership: A Survey, and Implications for Developing Economies,"
Chapters in SUERF Studies,
SUERF - The European Money and Finance Forum.
- Sanjiva Prasad & Christopher J. Green & Victor Murinde, 2001. "Company Financing, Captial Structure, and Ownership: A Survey, and Implications for Developing Economies," SUERF Studies, SUERF - The European Money and Finance Forum, number 12 edited by Morten Balling, 00.
- Frankfurter, George M. & Wood, Bob Jr., 2002. "Dividend policy theories and their empirical tests," International Review of Financial Analysis, Elsevier, vol. 11(2), pages 111-138.
- Ronald C. Lease, & Kose John, & Avner Kalay, & Uri Loewenstein, & Oded H. Sarig,, 1999. "Dividend Policy:: Its Impact on Firm Value," OUP Catalogue, Oxford University Press, number 9780875844978, December.
- Michael Funke, 2002. "Determining the Taxation and Investment Impacts of Estonia´s 2000 Income Tax Reform," Quantitative Macroeconomics Working Papers 20204, Hamburg University, Department of Economics.
- Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 1-411.
- Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
- Aaro Hazak, 2006. "Dividend Decision under Distributed Profit Taxation: InvestorÃs Perspective," Working Papers 145, Tallinn School of Economics and Business Administration, Tallinn University of Technology.
- Stewart C. Myers, 2001. "Capital Structure," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 81-102, Spring.
- Lewellen, Wilbur G. & Mauer, David C., 1988. "Tax Options and Corporate Capital Structures," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(04), pages 387-400, December.
When requesting a correction, please mention this item's handle: RePEc:ttu:wpaper:155. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Urve Venesaar)
If references are entirely missing, you can add them using this form.