R&D tax incentives and corporate cash holdings: Evidence from a quasi-natural experiment in China11All authors have contributed equally, and their names are listed alphabetically. This research received financial support from the National Social Science Fund of China [No.: 24BGL060], the National Natural Science Fund of China [No.: 72462021 and 72462022], and Jiangxi Province Social Science Fund [No.: 24YJ06]. We also thank Xinyu Ren, Zheng Wanqian, and Zijun Zeng for excellent research assistance

We exploit a tax change in 2015, which introduced additional R&D tax incentives for eligible enterprises through the super-deduction of R&D expenses, as a quasi-natural experiment to examine the effect of R&D tax incentives on corporate cash holdings in China. We find that following the policy change, treated firms reduce their cash holdings by 25.6%. This result is robust across alternative cash holdings measures, fixed effect choices, and sample configurations. Moreover, the policy's negative effect is more pronounced in firms with lower state ownership, smaller size, and greater financial constraints, as well as in provinces with weaker tax enforcement, higher marketization level, and locations in the eastern regions of China. Additionally, we show that the policy change reduces the cost of capital in treated firms. Overall, these findings align with trade-off theory, which suggests that firms reduce their cash holdings as R&D tax incentives mitigate the information asymmetry between firms and investors in emerging markets.