Tariffs, Corporate Cash Holdings, and Innovation

Konrad Adler, JaeBin Ahn and Mai Dao
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Konrad Adler: University of St. Gallen - School of Finance; Swiss Finance Institute
JaeBin Ahn: International Monetary Fund (IMF)
Mai Dao: International Monetary Fund (IMF)

No 25-71, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

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.

Keywords: Trade; MFN tariff; Cash Holdings; R&D; Patents (search for similar items in EconPapers)
JEL-codes: F12 G31 O32 (search for similar items in EconPapers)
Pages: 60 pages
Date: 2025-08
New Economics Papers: this item is included in nep-iaf, nep-ipr and nep-sbm
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2571

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