Abstract
This article aims to compare and contrast the available empirical evidence concerning the capital structure of Polish,Czech and Russian companies. This is an intriguing research area due to the fact that the Czech and Polish economiesbegan their transition to the market economy contemporaneously with Russia, and so along with other cultural andhistorical parallels, the data is comparable.We compare data from a selection of large companies from the selected territories and investigate whether effective taxrate is significant determinant of capital structure. The selected sample is comprised of 69 companies (50 from Russia, 9from Poland, and 10 from Czech Republic), using data over a period of fourteen years. We perform a regression analysisand interpret the results using theoretical knowledge as articulated in the academic literature. The dependent variablein all tested regressions is financial leverage, calculated as the ratio of the sum of short-term and long-term debts to thesum of short-term and long-term assets. Other variables evaluated include interest coverage ratio, the level of companytangibility, and the cost of debt. This set of input values was uploaded from the Bloomberg database.Our results indicate that taxation does have determining effect on the choice of a certain level of leverage. Moreover,the effective tax rate represents the most important factor in determining the model of capital structure utilised by largecompanies in each country studied. We establish the dependence of capital structure models on the level of corporate taxapplied in each country and identify a set of additional determinants which play a significant role.This paper’s novelty may be summarised as representing an advanced understanding of specific aspects of influence ofthe corporate taxation on the capital structure of companies in Russia and other economies of the former Eastern Bloc.This paper shines a new light on the subject area by extending the duration of the studied data beyond previous research,to fourteen years. As such, in this paper we present a comparitive dynamic which may be mapped on to other similarcomparitive studies. Our results will be of interest in professionals and academics who are involved in the fields oftaxation, debt and equity in Eastern Europe and Russia. The schema utilised here may be applied in a similar manner toexamine the development of similar economies in Eastern Europe and further afield.
Highlights
The principles of capital structure formation have been a primary area of interest in academic research for 50 years
We discovered that the effective tax rate of corporate taxation exercises a decisive influence on the choice of a certain level of financial leverage
Our first result established that the effective tax rate is a significant factor in the models of formation of the capital structure of large companies in Russia, Poland and Czech Republic
Summary
The principles of capital structure formation have been a primary area of interest in academic research for 50 years. This is because an optimal financial leverage plan may significantly improve the financial performance of a company. A patternless formation of financial leverage can be detrimental to the company’s value in a volatile economic environment. The methods used to create and maintain one or another form of capital structure are important. An unsystematic raising of debt financing results in an uncontrolled growth of interest charge. The latter, in its turn, is often a cause of tangible losses
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