Download Influence of profit and investors` value taxation on financing

Influence of profit and investors' value taxation on financing decisions of
Lithuanian companies
Paulius Jūrelė1
Kaunas University of Technology
Laisves av.55, LT-3000 Kaunas, Lithuania
Abstract
The first part of the paper reviews financial models and their empirical tests (such as Modigliani-Miller [1958;
1963], Miller [1977], DeAngelo and Masulis [1980], J.L.Berens and C.J.Cuny [1995], etc.), which analyse value of
companies as a function of financing decisions and taxes paid by companies and their investors. Despite quite opposite
conclusions of the models, it is obvious that value of the so called “debt tax shield” depends on taxation system, legal
environment and operating risk.
The analysis identifies an additional factor, which has not been covered by any of the reviewed authors – transfer
pricing used by financial groups.
The conclusion is, that in Lithuania financing decisions are inefficient and expensive mean of tax minimization due to
the following reasons: 1) availability of other tax shields; 2) specifics of operations of large financial structures; 3)
inefficient and illiquid capital markets; 4) uncertainty, risk, lack of information and limited planning opportunities.
Introduction
The definition of financing decisions, as it is
used in the paper, comprises two elements:
1) The decisions determine ways how to attract
recourses, which are necessary to support
business operations and their growth;
2) The decisions have an influence on allocation
of business value between certain groups of
interests, such as state, shareholders,
debtholders and employees.
Financial economists still argue about
influence of financing decisions on costs of
capital and value of a company. Solution of the
problem is the key in understanding the role of
financiers in a company: are they able to create
additional value by choosing appropriate
financing decisions and financial instruments, but
without interfering into main operations
(manufacturing, trading or other activities).
Researchers have specified various factors
influencing financing decisions of companies,
such as control, risks, management preferences,
information asymmetry, growth and investments,
conflicts of various interests, characteristics of
shareholders and creditors, characteristics of
assets and operations, etc.
In this article the focus is put on the link
between taxation, financing decisions and
business value. As debt interest is tax-deductible
cost item, it can be treated as income of capital
1
providers, which is subsidised by state. The term
“profit tax shield” covers all the items, which are
deductible from earnings before interest, taxes,
depreciation and amortisation (EBITDA) for the
purpose of tax base calculation. The profit tax
shield allows to reduce the profit tax base and
thus to reduce the value of business, which is
allocated to the state in the form of profit tax.
Profit tax shield includes such items as
depreciation, interest, and other non-cash cost
items.
The purpose of the work is to find out, what
is the impact of specific Lithuanian conditions on
the tax management through financing decisions.
The object of the analysis is Lithuanian
conditions, such as legal and taxation system,
economic situation and traditions, which
determine decisions of Lithuanian companies.
Methods of the research. Methods of
scientific literature analysis, comparison and
summarising were used in the research. On the
basis of the theoretical analysis Lithuanian
conditions were analysed, interpreted and
summarised using logical methods.
Profit taxation
Theories of Mogidliani F. and Miller M.
[1958 and 1963], known as MM theory, state,
that market value of any company in efficient
market depends only on its expected operating
profit EBIT and its business risk and does not
Tel. +370 7 45 17 38
E_mail address: [email protected]
1
depend on capital structure, if there s no state
interference (i.e. profit taxation):
Vunlev eraged  Vlev eraged  EBIT
k0
(Equation 1)
where k0 -capital costs of unleveraged company
In the course of efficient market arbitrary
process the prices of shares are set so, that lower
costs of additional debt are offset by higher
premium required by shareholders for financial
risk.
In efficient markets with profit taxation
financing decisions do not influence value of
companies, unless through profit tax savings:
VLEVERED  VUNLEVERED  t PROFIT x D ;
(Equation 2)
where tPROFIT - profit tax rate, and D-market
value of debt.
The product tPROFIT D is called debt tax shield
and indicates tax savings related with the debt.
Thus optimal capital structure shall be 100%
debt, because interest is tax deductible. However,
even authors of the theory recognize existence of
actual internal and external limitations on
maximum possible leverage.
Empirical researches of the debt tax shield
result in quite opposite results. Mogidliani F.
And Miller M. [1966] conducted a research to
support their theory, which evidenced that assets
make only 68,1-75,9% of companies value.
Growth opportunities add additional 2,3-10% and
debt tax shield - 22,6-23,7% of the value.
Masulis [1980] found decline of shares prices
after conversion of debt into equity.
Equity-into-debt-conversion increases share
prices. However, it is doubtful if the results of the
research can be explained only by the influence
of financial leverage. Changes of financial
leverage transfer to the market signals about
expected
profitability.
The
theory
of
Myers-Majluf [1984] states, that top-managers
will issue the securities, which are undervalued at
the time of issue. In such a case the information
effect overcomes the leverage effect.
The above doubts about the value of debt tax
shield are confirmed by other researches. Eckbo
[1986] (quoted by Fama & French [1997]
analyzed the companies, which debt increased
and equity remained at similar level. Price
increase was insignificant and much smaller than
we could expect according to the MM theory.
Fama and Frech [1997] tried to solve the
above problem by including into their regressions
proxies for both profitability and financial
leverage. However the regressions indicated
negative relationship between financial leverage
and Tobin Q2 ratio. The authors concluded that
their regressions failed to separate net effect of
debt tax shield and signalling effects of leverage
decisions overcame it.
Many researchers of financial leverage face
similar problem, because financing decisions
linked not only to taxation, but also to conflicts
of interests, risk and related thereto agency costs,
etc. Actually, up to the date the author of the
article is not aware of any empirical research,
which managed to solve the problem without
deficiencies.
Investors' taxation
In 1977 Merton Miller modified the MM
model by introducing taxation of investors. Tax
rates on shareholders’ income (tEQUITY) are lower
than rates on creditors’ income (tINTEREST), due to
capital gains taxation specifics. Therefore value
of debt tax shield is much lower and is calculated
according to the following formula:
 (1  t P )(1  t EQUITY ) 
PVDEBT TAX SHIELD  1 
D
1  t INTEREST


Equation 3
Value of debt tax shield could disappear at all,
if the following equity is valid:
1  t INTEREST  (1  t P )(1  t EQUITY )
2
Tobin Q is calculated by dividing total market value
of debt and shares by the total value of assets.
2
Equation 4
Main reason of difference in taxation of
shareholders and debt holders is lower tax rate on
capital gains and deferred tax on capital gains
until the securities are sold. According to the
theory, due to taxation dividends should be less
attractive to investors. The hypothesis is
confirmed by the research of Elton & Grubber
[1970]. The research proved, that after
announcement of dividends the prices of shares
fall down by the amount, which is insignificantly
lower than the amount of dividends.
On the other hand, research made by Eades,
Hess and Kim proves, that the effect cannot be
explained only by taxes. They showed similar
decrease of shares after announcement of shares
dividend, despite the fact that share dividends
have no tax consequences. Miller and Scholes
[1978, 1982] proved, that taxation of dividends
has no consequences on value, because USA laws
provide certain opportunities to avoid the
dividends taxation.
Anyway, the original theory of Merton Miller
[1977] proposed to segment investors according
to their marginal rate of borrowing, which
depends on taxation of specific investors.
Therefore, certain authors even mention
“marketing” of securities, when securities are
oriented towards needs of certain segments.
Other tax shields and actual profit tax rates
De Angelo and Masulis [1980] proposed a
theory, which takes into account other profit tax
shields, such as investments and depreciation.
Their conclusion is that the higher debt amount,
the higher possibility that a part of debt tax shield
is unused due to other available tax shields.
Furthermore, they proposed to segment market
according to different marginal borrowing costs,
which depend on level of other tax shields and
taxation specifics.
The theory of De Angelo and Masulis [1980]
is confirmed by analysis of USA treasury data
(Cordes and Sheffrin [1983], quoted by
Koutsoyiannis A [1992]). It indicated differences
in actual profit tax rates in various industries. The
highest actual profit tax rate is in the tobacco
industry (45%), and the lowest one – in
agricultural and transport companies (16%).
Empirical studies of M.Mason [1990] and
Graham [1996] (quoted by Fama and French
[1997]) proved that companies with high
marginal profit tax rates prefer debt financing.
*
J.L.Berens
and
C.J.Cuny
[1995]
proposed a theoretical model with carry-forward
and carry-backward of tax losses, which is
unlimited in time. The authors conclude, that
company cannot totally cover its current taxable
profit due to uncertainty and growth. However,
average tax rate with carry-forwards and
carry-backwards of tax losses is (1+g)/g times
smaller than normally.
Forecasting the future: growth, risks and
uncertainty
Consideration of dynamics modifies theories
of capital structure in the following aspects:
1. The real level of financial leverage is
characterised only by ratios, which are based
on cash flows or profit (loss) statements data.
Debt/total value ratios distort the picture,
because value of shares include value of
growth, while value of debt takes into account
only non-growing stream of interest. Optimal
capital structure is reached, when tax shields
cover the whole operating profit. A company
can reach optimal coverage of operating profit
by choosing different financial instruments,
i.e. various debt/total value ratios can be
qualified as optimal.
2. Optimal capital structure depends on specific
moment of time, because in the presence of
the real growth and inflation, amount of the
coverable profit will vary from period to
period. J.L.Berens and C.J.Cuny proposed the
formula, which takes into account influence of
growth:
PVDEBT TAX SHIELD = t P  D 
r
r -g
3
Equation 5
Where r is nominal risk free rate of return, g
growth of operating profit, D – market value
of debt, tp profit tax rate.
The higher the growth, the higher value of
debt tax shield. Firms, which grow faster, can
reach full and optimal profit coverage under
lower debt/value ratio.
3. Growth consists of the growth due to inflation
and the real growth. Inflation reduces value
of shareholders and value of debt tax shield
due to the following reasons:
 Taxes of capital gains are charged on
nominal increase of value, although the
real increase is much lower. Thus a part of
the growth accrues to government.
 Depreciation is calculated on historical
value of assets, which is not usually
indexed to adjust for inflation. Thus the
real value of depreciation tax shield is
lower. While investment depends on
current replacement value of assets, a lag
between investment and depreciation
appears.
4. More stable companies can keep higher
financial leverage.
Possibility
Possibilities
of financial
distress
Stable company
Risky company
CEXPECTED
C
Figure 1. Statistical distribution of
operating profit before depreciation and
financial risk
Certain periods are possible, when operating
profit before depreciation falls bellow the sum
of depreciation and interest payable. Most
authors, such as Modigliani and Miller,
J.L.Berens and C.J.Cuny, etc., assumed, that
bankruptcy never occurs. If during any period
company is not able to cover all its obligations
under debt contracts, creditors agree to
postpone some payments, because they
believe that downturn is only temporary and
that later the company will earn its average
expected earnings.
Target optimal level of interest is reached,
when operating profit before depreciation is
not greater than the sum of depreciation and
interest.
J.L.Berens and C.J.Cuny concluded, that level
of financial leverage is determined by the
three factors:
 personal and corporate tax rates;
 level of tax shields other than debt;
 probability distribution function of
company’s operating profit.
Analysis of Lithuanian conditions
The review of theories leads to the conclusion
that application opportunities of the models
reviewed depend on certain exogenous variables
that describe general economic conditions, tax
system and legal regulation.
1. Profit taxation. Generally, profit taxation
is described by two variables: profit tax base (TE
– taxable earnings) and profit tax rate t. The
research of profit taxation of Lithuanian
non-financial companies listed on Current and
Official lists of Lithuanian Stock Exchange has
lead to the following results (Table 1 and Fig. 2):
a. Financial earnings before taxation EBT (as
shown in profit and loss statements) are
summarised by industries in the Table 1. Total
EBT diminished every year since 1997 and in
1999 it made only half of the 1997 level. EBT
diminished in all industries, except slight
increase in light industry and similar level of
port related and other industries. The fact
might have two implications: (i) either
operational effectiveness suffered during the
period; or (ii) companies are using more tax
shield to reduce their tax base.
4
Table 1. Earnings before profit taxes EBT of companies listed in the official and current lists of
Lithuanian national stock exchange*, mio Litas
Earnings before taxes EBT, mio Litas
Change
Change
between 1999 between 1999
Industry
1995
1996
1997 1998
1999 and 1995
and 1996
Beer and alcohol
118,7
99,7
91,4
64,4
34,1
-71%
-66%
Chemistry
-24,7
3,6
65,2 -33,8 -177,6
620%
-5037%
Electronics
-13,1
52,5
20,5
13,5
10,7
-181%
-80%
Energy
-40,2 313,4
-6,6 133,9
109,7
-373%
-65%
Other (trade, telecom, etc.)
-9,3
92,8 146,5 214,8
192,7
-2177%
108%
Light industry
2,6
16,2
11,2
18,3
20,7
688%
28%
Wood products
6,7
1,5
3,1
3,8
-3,7
-155%
-347%
Milk processing
35,1
38,0
48,6
56,0
20,0
-43%
-47%
Construction
0,3
5,2
2,7
5,7
3,4
969%
-35%
Port related industry
156,7 117,3 200,8
66,1
108,9
-31%
-7%
Grand total
232,8 740,2 583,3 542,6
318,9
37%
-57%
Change of grand total per year
218%
-21%
-7%
-41%
*Excluding financial companies, AB “Sanitas” and AB “Alytaus tekstilė”
b. Material change in tax base calculation
c. Official nominal profit tax rate made 29% until
requirements occurred in July 1998, when: (i)
1st January 2000, later it was reduced to 24%.
investment tax credit ("zero tax rate" and
Furthermore it is unclear, what profit taxation
"depreciation in advance") was introduced; and
will remain in future and if it will remain at all.
(ii) 5-year carry forward of tax losses was
 Actual profit tax rate diminished during all the
allowed. The Grand Total line of Figure 1
period. The steepest reduction (total average
explicitly indicates the related reduction of
actual tax rate diminished to 4-5%) accrued in
actual profit tax rate.
1998 after the above-mentioned legal changes.
5
Figure 2. Actual tax rate of companies listed in the official and current lists of Lithuanian national
stock exchange
48%
45%
43%
40%
38%
35%
33%
30%
28%
25%
23%
20%
18%
15%
13%
10%
8%
5%
3%
0%
Beer and alcohol
Chemistry
Electronics
Energy
Other
Light industry
Wood products
M ilk processing
Construction
Port related industry
Grand total
1995
1996
1997
1998
1999
2000**
*Excluding financial companies, AB “Sanitas” and AB “Alytaus tekstilė”
** data, which was available on 15th February, 2001
 Actual profit tax rate varies across different
industries. The highest tax rates are paid by
alcohol and beer industry (average 14%) and light
industry (average 11%) and wood products. Other
industries paid tax rates, which are far bellowing
average. Profit distribution policy, investment
policy and other tax shields available can explain
the differences in profit taxation.
Generally, the research indicates relatively low
and diminishing profit taxation importance in
making corporate finance decisions. However,
profit tax rates vary significantly in different
companies and industries – the fact leaves enough
space for financial leverage application in certain
companies.
2. Personal taxes. According to Miller [1977]
investors’ taxation is described by two variables – tax
rate of interest and tax rate of equity holders’ income.
In Lithuania interest paid by companies to natural
persons is taxed at 20% rate, but interest paid and
received by banks is not taxed. Dividends paid to
natural and legal persons are taxed at 29% rate and
are deducted and paid by the company, which pays
out the dividends. Profit, which is paid out as
dividends, is subject to profit tax. However, taxable
income can be reduced by the amount of dividend
taxes, but no more than total profit tax of the period.
Capital gains received by natural persons are not
taxed.
Analysis or Lithuanian conditions has shown:
 Personal taxes do not change value of debt tax
shield (consistently with MM [1963]), if the
creditor is a bank.
 Personal taxes make the value of debt tax shield
(according to MM [1963]) negligibly small, if the
creditor is natural person.
 Dividends are taxed more than capital gains;
therefore reinvestment and subsequent capital
gains are more favourable to investors. Higher
leverage makes shareholders to defer their
dividends and thus save taxes. On the other hand,
considering low liquidity of Lithuanian stock
market, explicit risk of capital gain realisation
exists.
Influence of financial groups
None of the reviewed capital structure theories
takes into consideration a very important factor transfer pricing used by financial groups.
Shareholders, who control companies, receive an
additional value. From the point of view of cost and
management accounting the additional value received
by controlling shareholders have the following
features:
*
Researchers 3 have proved, that value of a
company depends on both structure and
characteristics of shareholders. Thus we can suppose,
for example, “active monitoring hypothesis” of Schleifer
and Vishny [1986]; theories of “agency costs reduction”
and “management entrenchment” of Jensen nad Meckling
[1976]; theories of Fama and Jensen [1983], cited
byT.J.Brailsford and others [1998]
3
6
that shareholders, whose actions, services and
abilities increase company’s value, are entitled to
some additional benefits. However, actually it is
complicated to measure the real value of such
management services.
*
According to economical logic, such a
transfer of a part of operating profit to shareholders is
nothing else, but capital costs.
*
From the point of view of bookkeeping,
these additional capital costs are reflected as a
decrease of operating profit (in a form of either
increased expenses or decreased income).
*
The task of judgement about such additional
value, which is received by controlling shareholders,
only from traditional financial reports is complicated
or even impossible. Even if legal requirements
become stricter, creativity of financiers and lawyers
will advance simultaneously. Extent of transfer
pricing can be evaluated only if adequate
requirements for consolidation, disclosure of
information and definition of related parties are valid
and applied.
Existence of financial groups makes the following
corrections to the theory of capital structure:
1) Separation of financing sources only to debt
and equity becomes insufficient. Shareholders shall
be divided according to their control power (for
example, into controlling and minor shareholders).
Controlling shareholders always receive additional
benefit in a form of transfer pricing, which they do
not share with minor shareholders. Thus value
received by shareholders depends on the level of
control, and shareholdings of various sizes imply
different capital costs.
2) Transfer pricing, as a mean of profit tax
minimisation, modifies the task of tax minimisation financial group can increase an operating profit in the
company, which has more available tax shields (such
as investment tax credits, depreciation, interest, past
tax losses, etc.). Thus profit, which is exposed to
taxation, firstly can be covered by other tax shields,
then by transfer pricing and the rest part, if any, - by
interest.
3) If we continue to keep on the statement of MM
theory, that capital structure has no other influence
on valuation of company, except through debt tax
shield, we can distinct two strategies of corporate and
investors' taxes minimisation:
a) For controlling shareholders, transfer pricing,
who allows optimally utilise tax shields
available to several distinct companies of the
same financial group, is the most appropriate
form of value distribution.
b) For small non-controlling shareholders,
increase in value of their shares, which is taxed
at lower rate than dividends, is the most
appropriate form of value distribution.
4) Free and active circulation of company's shares
is vital for small shareholders, because it allows to
mark-up and realize their capital gains at any time.
However, free circulation of company's shares above
certain level is extremely inappropriate to large
shareholders, because it exposes their control to risk.
Two systems of companies' management are
distincted (Steponkus G., 2000):
 market-oriented (Anglo-Saxon and partly - Latin
countries), where an active stock exchange serves
as a mechanism for independent shareholders to
influence management of companies;
 network-oriented (German and several other
European countries), where a group of oligarchs
make management decisions through a network of
stable relations.
State of balance between interests of major and
minor shareholders shall depend on the following
factors:
a) Structure and characteristics of shareholders
in a certain company. In Lithuania top-managers
often coincide with major shareholders as a result of
privatisation process. Major part of foreign investors
is from the former Soviet Union, German and other
European countries, where network-oriented systems
dominate.
b) Legal requirements. There are no
consolidation
requirements
for
Lithuanian
companies, except banks, and no special laws,
regulating operations of financial structures. Our
laws set very limited benchmarks for transfer pricing.
We can summarise, that both Lithuanian laws and
privatisation processes are more appropriate to large
shareholders. However, in developed countries
(including European Community) market-oriented
system is treated as more efficient and legal
regulation is developed to make it more appropriate
for small shareholders.
c) Importance of public capital markets to
specific company and to total economy of the
country. According to the data of the IMF4 for three
quarters of 1999, capitalisation of stock exchanges in
Anglo-Saxon countries made 82,1% of GDP, and in
German - 41,7%. But in Lithuania the ratio was only
13,6% and it evidences low opportunities of
financing in Lithuanian stock exchange, and only
minor free circulation of companies' shares.
d) Requirements, control and motivation of
companies managers. If managers are appointed,
controlled and motivated mainly by controlling
shareholders, and no leveraging power exists, then
4
cited by Steponkus G. [2000]
7
the main objective of management becomes
maximisation of the value, which is distributable not
to all shareholders, but only to a part of them (mainly
controlling shareholders).
Currently processes of ownership consolidation
and strengthening take place in Lithuania; therefore
influence of financial groups, as discussed
previously, is really significant. Maybe, the most
efficient mechanism to leverage interests of small
and large shareholders is free circulation of shares
above certain level. However, only several such
companies can be distincted in our country. Such
conditions, when earnings depend on the level of
control, but not on the amount of investment, frighten
away many small portfolio-oriented investors. In
such a case, the main function of financial structure
is not to maximise value of all shareholders, but to
ensure financing of a company by simultaneously
maintaining maximum control.
Friction in capital markets.
The MM statement regarding efficient arbitrary
process, which forms real prices of securities, is valid
only under insignificant friction in capital markets.
Limitations of Lithuanian capital markets determine
low liquidity of securities, and therefore costs of
transactions are significant. The fact has the
following implications:
i) high transaction costs decrease present value of
debt tax shield significantly;
ii) inefficient arbitrary process in our capital markets
often puts to question the MM statement, that
financing structure influences company’s value
only through taxes, and other its influence is
eliminated in the course of efficient market
arbitration;
iii) due to ineffective arbitrage, decisions regarding
profit distribution and reinvestment will not
reflect market prices of shares in every case.
iv) Free and active circulation of company's shares is
very useful for small shareholders, because it
allows mark-up and realizing their capital gains at
any time. However, free circulation of company's
shares above certain level is extremely
inappropriate to large shareholders, because it
exposes their control to risk.
Signalling effect
In the absence of the signalling effect managers,
shareholders and other participants of capital markets
have
equal
information
and
homogenous
expectations about future of any company. However,
in Lithuania transparency of company’s is rather low,
and laws, which regulate disclosure and use of
information, function inefficiently, therefore
shareholders, which control information, can receive
higher benefit. Under such conditions, only control
can ensure complete information. Small shareholders
have no complete information, as they cannot control
and monitor operations. Thus increased agency costs
reduce present value of debt tax shield, which is
valuable only to small shareholders, as discussed
above.
Risk and bankruptcy costs
Lack of information and transparency, as
mentioned above, increases uncertainty of the future.
Furthermore, Lithuanian companies operate in more
risky environment (Lithuanian credit rating fluctuates
on the margin between speculative and investment
rates.) Present value of debt tax shield decreases, if
uncertainty and risk increase.
Even if any company goes bankrupt due to
financial leverage, main operations of the company
are continued - company is simply restructured (for
example its shareholders or its capital structure is
changed). Thus, “costs of restructuring” is more
precise term instead of “costs of bankruptcy”.
Researchers have shown, that these costs in Western
companies make 10-15% of total company value.
Low liquidity of both fixed production and financial
assets in Lithuania determine relatively high costs of
restructuring, including costs of operations
suspension. Such a situation influences both
shareholders’ and creditors’ very conservative
understanding of financial leverage increase.
Conclusions
Under certain assumptions, a company can save
taxes and increase its value by choosing the
appropriate capital structure. Effectiveness of various
tax shields (including debt tax shield) depends on
tax, legal system and economic traditions of specific
country. Therefore, existence and application of
optimal capital structure shall vary in different
countries.
Calculation of capital costs shall take into
consideration the segmentation of shareholders
according to their level of control. Level of control
influences value of shares and respectively - strategy
of financing.
Analysis has shown, that different industries and
even different companies inside the same industry
pay different actual profit tax rates, ant this is
determined by different tax shields available.
Lithuanian companies have available other than
debt tax shields, such as investment tax credits,
depreciation, carry forward of losses, etc., which are
relatively more efficient and lower-costing.
Review of profit and its direct/indirect
distribution taxation has shown that larger part of
taxes is on shoulders of natural persons, but not
companies. Under current taxation system small
8
shareholders can receive significant benefit from debt
tax shield.
For small shareholders to capture value of debt
tax shield, efficient and liquid capital markets, where
real prices of shares are formed, are necessary.
Furthermore, in order to make precise evaluations of
future earnings and their risk, small shareholders
shall be quite well informed about operations of
companies. As these conditions in Lithuania are
weak, present value of debt tax shield reduces
significantly.
Debt tax shield is negligible for large financial
groups, which by transfer pricing can utilize different
levels of tax shields are available to different
companies of the group.
Due to legal regulation, traditions, weak capital
markets and specifics of shareholders, in Lithuania
managers of companies focus more on interests of
large shareholders. In the future balance between
interests of minor and major shareholders will
depend on development of each of the above factors.
We can summarize, that for Lithuanian companies
capital structure is inefficient and seldom applied
mean of tax minimization due to the following
reasons: 1) availability of other low-costing and more
efficient means of tax management; 2) uncertainty,
lack of transparent information and limited planning;
3) specifics of transfer pricing used by financial
groups.
8. Modigliani F. and Miller M.. (1963). Corporate income
taxes and the cost of capital: a correction // American
Economic Review, June 1963, 433-442.
9. Steponkus G. (2000) Bendrovių valdymo kultūros įtaka
kapitalo rinkos plėtrai // Verslo žinios, Nr.57.
References
1. Berens J.L. and Cuny Ch.J. (1995). The capital
structure puzzle revisited // The Review of Financial
Studies, 1995 Vol.8, No.4, 1185-1208.
2. Copeland T., Koller T., Murrin J. (1996). Valuation
measuring and managing the value of companies.
McKinsey & Company, Inc.
3. De Angelo H. annd Masulis R. (1980). Optimal capital
structure under corporate and personal taxation //
Journal of Financial Economics, March 1980, 3-30.
4. Koutsoyiannis A. (1992). Part three. Financing
decisions of the firm. In Non-price decisions. The firm
in modern context (4th ed.) (pp. 370-497). New York:
Macmillan education.
5. Miller M.. (1977). Debt and taxes // The Journal of
Finance, May 1977, 261-275.
6. Modigliani F. and Miller M.. (1958). The cost of
capital, corporation finance and the theory of
investment // American Economic Review, June 1958,
261-297.
7. Modigliani F. and Miller M.. (1966). Some estimates of
the cost of capital to the electric utility industry,
1954-57 // American Economic Review, June 1966,
373.
9