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Value‐Added‐Tax and Corporate Cash Holdings Evidence From a Quasi‐Natural Experiment

Author

Listed:
  • Chen Ling
  • Siyuan Ni
  • Solomon Wang
  • Junyu Wu

Abstract

This study examines the impact of the value‐added tax system (VAT) on corporate cash holdings. We utilise a quasi‐natural experiment provided by a tax policy reform in China, where business tax was replaced with VAT for specific companies. Employing panel data and a difference‐in‐differences approach, our analysis reveals that firms subject to the new tax policy experience a 1.4% reduction in their cash‐to‐assets ratio. This decrease in cash holdings is particularly notable among firms with an active dividend payout policy. Furthermore, we show that the transition to VAT encourages firms to outsource production and services to capitalise on the tax credits offered by the VAT system. Overall, our findings highlight how tax policy can significantly influence corporate financial behaviour and strategic resource allocation.

Suggested Citation

  • Chen Ling & Siyuan Ni & Solomon Wang & Junyu Wu, 2026. "Value‐Added‐Tax and Corporate Cash Holdings Evidence From a Quasi‐Natural Experiment," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 66(1), pages 308-318, March.
    • Handle: RePEc:bla:acctfi:v:66:y:2026:i:1:p:308-318
    DOI: 10.1111/acfi.70087
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    References listed on IDEAS

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