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

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  • Chen, Tuyue
  • Mu, Congming
  • Tang, Shengzhuo

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.

Suggested Citation

  • Chen, Tuyue & Mu, Congming & Tang, Shengzhuo, 2025. "The effects of tax cuts and financing subsidies on environmentally and financially constrained firms," Economics Letters, Elsevier, vol. 247(C).
    • Handle: RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176525000060
    DOI: 10.1016/j.econlet.2025.112169
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    More about this item

    Keywords

    Environmental constraints; Tax cuts; Financing subsidies; Liquidity management; Cash holding; Tobin’s q;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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