Work

Tariffs, corporate cash holdings, and innovation

Year: 2026

Type: article

Abstract: We study how trade liberalization affects financial and innovation decisions of large firms across major G7 countries. We document how firms increase their cash holdings when their country’s trading partners lower their import tariffs, while we find no effect of a decrease in the country’s own import tariffs. Specifically, we find that the increase in cash holdings occurs before tariff cuts by trading partners and is associated with higher R&D spending and patent filing after the cuts. Our results are consistent with the predictions of a model in which higher expected returns to innovation from enhanced export market access lead to higher cash buffers.

Source: Journal of Corporate Finance

DOI: 10.1016/j.jcorpfin.2026.102960

Authors: Konrad Adler, JaeBin Ahn, Mai Chi Dao

Institutions: University of St.Gallen, Swiss Finance Institute, International Monetary Fund

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Estimated APC paid: $4,140