Valuing the Interest Tax Shield in the Central European Economies: Panel Data Approach
Maria Kovacova, Vladimir Krajcik, Lucia Michalkova, Roman Blazek
Keywords:
leverage, tax shield, competitiveness, Visegrad countries, panel data
Abstract:
Capital structure is one of the most frequently discussed issues within Corporate Finance Theory.
Optimizing the capital structure and value of the tax shield through the evaluation of its interests
can lead to the increasing value of the enterprise, followed by the rising competitiveness and
flexibility. The aim of this study is to provide a novel look at the value of the interest tax shield
and its determinants in the emerging economies of the Visegrad Four. The model was created on
a net sample of nearly 7,000 profitable enterprises between 2015 and 2019 using a one-way fixed
effects model of panel data. Regional model results show five main determinants of the debt
tax shield (Tangibility, Current Ratio, Gearing, Cost of debt and Size). Others, such as non-debt
tax shield, business growth or profitability, are regional, and their impact varies depending on
the economic conditions of the countries. The direction of influence of the main determinants
indicates that, contrary to the assumed trade-off theory, profitable companies manage the capital
structure and the value of tax shield according to the pecking order or modified pecking order
theory. The tax shield is made up mostly of interest on short-term loans, which increases the risk
of financial distress. There is a hierarchy of funding sources, from trade credit, through shortterm
loans, to long-term loans, which are used in the analysed firms to the smallest extent. The
structure of liabilities may be considered another determinant of the debt tax shield.
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 Valuing the Interest Tax Shield in the Central European Economies: Panel Data Approach [PDF file] [Filesize: 1.31 MB]
 10.7441/joc.2022.02.03
Kovacova, M., Krajcik, V., Michalkova, L, & Blazek, R. (2022). Valuing the Interest Tax Shield
in the Central European Economies: Panel Data Approach. Journal of Competitiveness, 14(2), 41–59. https://doi.org/10.7441/joc.2022.02.03
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