Corporate Governance and the Impact of Transferring the Owners’ Registered Office to Tax Havens on the Future Financial Position of Slovak Companies

Abstract

The purpose of this work is to examine the association between corporate governance and the financial decision-making process in the areas of tax planning and tax optimization. Specifically, the paper aims at analyzing the impact of moving the Slovak companies’ registered office to a tax haven on their future financial position. We have performed statistical testing of selected bankruptcy indicators in Slovak companies. We have compared Altman Z´ score and Index IN05 between Slovak companies with ownership links to selected tax havens (2314) and Slovak companies with no ownership links to tax havens (157,480). For a deeper analysis we have divided tax havens into three categories, onshore, midshore and offshore jurisdictions and performed statistical testing between companies in each of these categories and companies with no ownership links to a tax haven. We have obtained the financial data of all Slovak companies from financial statements provided by Finstat and we have matched this data with the Bisnode database, which lists Slovak companies in tax havens. The results of our analysis showed statistically significant differences in the Altman Z-score as well as in the Index IN05 among the surveyed groups of enterprises. Specifically, businesses with no links to tax havens achieve an average of 55.3% better than the median values of the Altman Z-score and 32.8% higher than the median values of the Index IN05, which means that businesses with no links are on average in the so-called gray zone, whereas companies with tax haven links are on average in a zone where bankruptcy is more likely.