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Tariffs, Corporate Cash Holdings, and Innovation

Author

Listed:
  • Konrad Adler

    (University of St. Gallen - School of Finance; Swiss Finance Institute)

  • JaeBin Ahn

    (International Monetary Fund (IMF))

  • Mai Dao

    (International Monetary Fund (IMF))

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.

Suggested Citation

  • Konrad Adler & JaeBin Ahn & Mai Dao, 2025. "Tariffs, Corporate Cash Holdings, and Innovation," Swiss Finance Institute Research Paper Series 25-71, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2571
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    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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