The effects of tax cuts and financing subsidies on environmentally and financially constrained firms

Tuyue Chen, Congming Mu and Shengzhuo Tang

Economics Letters, 2025, vol. 247, issue C

Abstract: We consider the impacts of tax cuts and financing cost subsidies on liquidity management of environmentally and financially constrained firms. Tax cuts are relatively effective at achieving the goal of providing value to firms, promoting investment and paying more dividends. Financing subsidies lead firms to issue more equity and hold less cash on average. Moreover, financing subsidies are more effective in reducing asset sales but tax cuts are more effective in promoting positive investment. Tax cuts facilitate efficient improvement in social welfare.

Keywords: Environmental constraints; Tax cuts; Financing subsidies; Liquidity management; Cash holding; Tobin’s q (search for similar items in EconPapers)
JEL-codes: G31 G32 H25 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176525000060

DOI: 10.1016/j.econlet.2025.112169

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