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Business & Economics

DO FIRM CHARACTERISTICS INFLUENCE EFFECTIVE CORPORATE TAX RATE? EMPIRICAL EVIDENCE FROM A PANEL OF FORMER COMMUNIST EASTERN EUROPEAN MARKETS
Mihaela Onofrei, Georgeta Vintila, Stefan Cristian Gherghina, Radu Alin Paunescu, Florin Oprea

ABSTRACT. This paper explores the drivers of effective corporate tax rate (ECTR) for a panel of companies listed on eight stock exchanges from EU Members that had an accession in 2004-2007 (Bulgaria, Estonia, Hungary, Lithuania, Latvia, Poland, Romania, and Slovenia). The covered period of data panel was between 2000 and 2016. Following the viewpoint of firm characteristics, we employed variables based on financial statements (such as profitability, asset's composition, indebtedness, liquidity, as well as firm-level controls in terms of firm size and statutory rate). Be estimating several econometric models via the method of generalized least squares, the empirical results generally provide support for positive relations between profitability (as measured by return on equity and return on assets), assets' composition (captured by equity multiplier, capital intensity, inventory intensity), liquidity (specifically current liquidity), and statutory rates. Indebtedness proxies (in form of long term debt to assets ratio and debt to equity ratio) revealed a mixed relationship with corporate taxation, but overall indebted companies show higher levels of effective tax rates over long time. As policy implication, the empirical outcome supports the political cost theory in case of the investigated former communist Eastern European Markets .

KEYWORDS:  effective corporate tax rate, firm characteristics, former communist countries, generalized least squares, multivariate panel data regression.

JEL classification:  C33, H25.