Work detail

The Impact of Thin Capitalization Rules on Capital Structure of Firms in the Czech Republic

Author: Bc. Martin Mendroš
Year: 2008 - summer
Leaders: Mgr. Magda Pečená Ph.D.
Consultants:
Work type: Bachelors
Language: English
Pages: 68
Awards and prizes: B.A. with distinction from the Dean of the Faculty of Social Sciences for an extraordinarily good bachelors diploma thesis.
Link:
Abstract: The reform of the public budget policy with effect from January 1, 2008 have brought a lot of significant changes into the tax legislation of the Czech Republic. This thesis analyzes the impact of the amendment to the Income Taxes Code, namely thin capitalization rules, on capital structure of sectors with high leverage or riskier nature of business. A dataset of major leasing and factoring firms operating in the Czech Republic and representing one of the affected sectors is used to illustrate the impact. The results indicate that thin capitalization rules disrupt legitimate expectations of agents, change the business environment and influence financing and investment decisions of corporate executives. In order to support equity financing of the firms, legislators should aim at reducing regulatory burden connected with raising external capital instead of imposing additional restrictions on debt.
Downloadable: Bachelor Thesis of Mendroš

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