Tomas Kliestik

Faculty of Operation and Economics of Transport and Communications, University of Zilina,

Slovak Republic

tomas.kliestik@fpedas.uniza.sk

Is a tax shield really a function of net income, interest rate, debt and tax rate? Evidence from Slovak companies

Lucia Michalkova

Faculty of Operation and Economics of Transport and Communications, University of Zilina.

Slovak Republic

lucia.michalkova@fpedas.uniza.sk

Maria Kovacova

Faculty of Operation and Economics of Transport and Communications, University of Zilina.

Slovak Republic

maria.kovacova@fpedas.uniza.sk

Abstract. Existence of tax shields as a result of taxable expenditures is a significant factor determining profitability and rentability of enterprises. In the long-term horizon, it represents a relevant and a significant generator of corporate value. The aim of the present paper is to propose, quantify and validate a comprehensive model to identify the determinants of the value of the interest tax shield in the conditions of Slovak Republic. The model was developed based on a multiple linear regression analysis, the conditions of multicollinearity of explaining variables, homoscedasticity, autocorrelation and normality of residuals were tested. Input data were obtained from the financial statements of the year 2017 of more than 6,000 Slovak companies. Using the proposed model, we found that the value of tax shield is lower than the product of the debt value and the tax rate, which is symptomatic for imperfect markets. Stemming from these results we can state that reclassification of Slovak economy considering the positive development of traditional macroeconomic indicators, using a simple comparative analysis in the context of dynamic development of the emerging markets, is not correct. Slovak economy has the status of the so-called emerging economy sui generis, which forms a platform to verify a wide range of economic mechanisms and functionalities with respect to the identified particularity.

Received: May, 2018

1st Revision: October, 2018

Accepted: November, 2018

DOI: 10.14254/2071-8330.2018/11-4/21

JEL Classification: G32, P34

Keywords: tax shields, debt value, emerging economy, linear regression