CAPITAL STRUCTURE AND TAXATION OF COMPANIES OPERATING WITHIN NATIONAL AND MULTINATIONAL CORPORATE GROUPS: EVIDENCE FROM THE VISEGRAD GROUP OF COUNTRIES

Marta Kluzek,Katarzyna Schmidt-Jessa

doi:10.3846/jbem.2022.15634

Abstract

The aim of this study is to review the level of debt and the impact of taxation on the capital structure of companies operating within national and multinational corporate groups in the countries of the Visegrad Group. In the research, financial data was used from 2012–2018 regarding entities forming part of corporate groups, and panel regression models with fixed effects were applied. According to the results of the research, domestic corporations are generally more leveraged and have a lower effective tax rate than multinational corporations. At the same time, the effective tax rate was significant only in six models out of sixteen, and mostly in the case of multinational corporations. The direction of impact was inhomogeneous. Other determinants of the financing structure which most often appeared as significant, in the case of companies operating both within domestic and international capital groups, include sales profitability as well as the tangibility and the age of the company. An additional analysis made for Poland and Slovakia determined that a change in the law on thin capitalization influenced entities’ capital structure determinants, but had no significant impact on the companies’ level of debt.

Highlights

A typical form of economic cooperation among companies which proved to work well in economic systems are groups of companies, which are referred to as corporations, business or corporate groups
While the history of corporate groups in these countries begins quite recently in the 1990s, it was in the period of transition from a centrally controlled economy to a market economy (for more on political transformation see Winiecki (2012)) that favourable systemic conditions were created capable of stimulating free business activity in different organisational forms, including the creation and development of national and multinational corporate groups
H2: The effective tax rate is a significant driver that shapes the capital structure in the case of entities forming part of multinational corporations, while it is insignificant in the case of entities operating within national corporations

Summary

Introduction

A typical form of economic cooperation among companies which proved to work well in economic systems are groups of companies, which are referred to as corporations, business or corporate groups. It is widely understood that the emergence of such structures results from market imperfections and the insufficient institutional development of econo-. Mies (Gaur & Delios, 2015; Hsieh et al, 2010; Khanna & Rivkin, 2001; Pattnaik et al, 2018; Wandel, 2011) This problem is relevant in relation to developing countries in which “business groups are a transitory organisational structure that substitutes for institutional development” It seems crucial to analyse companies that belong to corporate groups and are active on the territories of developing economies This involves companies doing business in post-communist countries. While the history of corporate groups in these countries begins quite recently in the 1990s, it was in the period of transition from a centrally controlled economy to a market economy (for more on political transformation see Winiecki (2012)) that favourable systemic conditions were created capable of stimulating free business activity in different organisational forms, including the creation and development of national and multinational corporate groups

Objectives

Results

Conclusion