Tariffs, corporate cash holdings, and innovation
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.
Fields of Study & Subjects
Global trade and economics
International Business and FDI
Global Financial Crisis and Policies
Publication details
- Journal / source
- Journal of Corporate Finance
- Publisher
- Elsevier BV
- Volume
- 98
- Pages
- 102960–102960
- Publication date
- 4 February 2026
- Language
- EN