Corporate Cash Holdings and Tax Changes: Evidence from Some CEE Countries

The paper investigates determinants of corporate cash holdings in Central Eastern Europe (CEE) countries. In particular, it looks into the effect of tax changes and tax uncertainty on cash holdings in industrial listed companies from Bulgaria, Latvia, Lithuania, Poland, Romania, Slovak Republic and Slovenia. The sample contains 484 firms from those countries with data for the period 2008-2014. The main goal of the research was to find out how changes in tax rates and tax system influence corporate cash holdings. Beside determinants related to tax changes, the research included control variables indicated in literature as cash holdings determinants, such as: financial constraints, company's profitability, leverage, working capital strategy and economic environment uncertainty. The results show that cash holdings increases with growth in profit tax rate and decreases with growth in number of tax payments. Simplification of the tax system is accompanied by an increase in the level of cash holdings, however various effects of changes in particular factors were observed, such as cash holding decreases with growth in corporate income tax rate, but it increases with uncertainty measured by growth in numbers of hours required to prepare, file and pay taxes.