Financial Performance of Czech Subsidiaries under Control of the EU Listed Companies
Financial Performance of Czech Subsidiaries under Control of the EU Listed Companies

Author(s): David Procházka
Subject(s): Supranational / Global Economy, Methodology and research technology, Accounting - Business Administration
Published by: Masarykova univerzita nakladatelství
Keywords: IFRS adoption; financial performance; parent-subsidiary links;
Summary/Abstract: Entities under foreign control play an important role in economy. In the Czech context, companies with foreign owners generate around 50% of industrial output (Ernest, 2014). Many of these subsidiaries are controlled by parents listed at regulated markets, for which consolidated financial statements in compliance with the IFRS shall be prepared. Czech subsidiaries might form a significant share of corresponding group’s results, taking into evidence of Procházka (2016) that just 0.3% of Czech non-financial companies make 30% of aggregate output in non-financial sector (measured by share on total turnover). Furthermore, the analysis of individual corporate data and macroeconomic time series unveil a wide dispersion in the effective tax rates of these companies (Procházka, 2016). The finding implies a conjecture about two-way profit transfers both into and out of the Czech Republic. This paper aims at assessing empirically the financial performance of Czech subsidiaries under control of EU listed companies, including cross-sectional differences in terms of geographic affiliation of the parents. The results indicate relatively evenly distributed return on assets (ROA), but significant differences in return on equity (ROE). Furthermore, the values of ROA are on average higher than ROE, suggesting profit shifting in the groups.

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