Cash Flow Predictability and Firm Volatility: Evidence from China’s Export Tax Rebate Reform

Cash Flow Predictability and Firm Volatility: Evidence from China’s Export Tax Rebate Reform | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Cash Flow Predictability and Firm Volatility: Evidence from China’s Export Tax Rebate Reform Lixiang Liu This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-8736780/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract This paper examines how cash flow predictability affects volatility and be- havior among small firms. I exploit China’s 2006Export Tax Rebate reform, which decentralized approval authority from municipal to county-level tax bureaus and transformed uncertain, multi-month payment delays into trans-parent processes with rebates delivered within days. Using a geographic re-gression discontinuity design that compares firms located in adjacent towns across policy boundaries, I find that improved cash flow predictability re-duces sales growth volatility by approximately 19 percent. The results show that small firms respond to predictable cash flows not by expanding scale, but by adopting more conservative operating strate-gies. Treated firms increase cash-to-asset ratios, raise wages, and reduce fixed investment, indicating a shift toward liquidity buffering and workforce retention rather than capital expansion. Employment volatility and job de-struction also decline, suggesting that predictable cash flows enable firms to sustain ongoing commitments and stabilize operations. At the regional level, improved cash flow predictability intensifies com-petition. Profit margins fall and new firm entry declines, consistent with stronger incumbents raising operational standards and increasing barriers to entry. These findings highlight cash flow predictability as a distinct and economically important dimension of financial constraints for small firms. The results have direct implications for policies aimed at improving pay-ment practices, suggesting that predictable payment timing can enhance firm stability while reshaping market dynamics. Cash flow predictability firm volatility financial constraints small Full Text Additional Declarations No competing interests reported. Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-8736780","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":588653718,"identity":"a88d8395-349f-4916-9244-3bf1dfc83330","order_by":0,"name":"Lixiang Liu","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAA3UlEQVRIie3RvwuCQBTA8ReB04Xrk8j+BeNA7L9RgqaIRocIp1q0VvsvBKHZOMjlrNU/IwhCKKqLxsAfW8R9txs+vLt7ADLZr4YF6ioQYJ9jUoMMfYtqXiPiKq4TJQTate6khpPBOSdIaZrt2WwOjtfKyscg51QLLdRNPrVZeBAEjnb5mDSIuiimmDkxGFGegnCjVPRZJ77dFXTi8E0eUE2MNNghChKhIJ1lDTLgp6ul+UiRTwy2XQNdVr1Fz8ejHIuFrq44vcyu0NtgxY99pyBvKMSq/MZEJpPJ/rsXuCJJUsXfd1UAAAAASUVORK5CYII=","orcid":"","institution":"Chiba University","correspondingAuthor":true,"prefix":"","firstName":"Lixiang","middleName":"","lastName":"Liu","suffix":""}],"badges":[],"createdAt":"2026-01-30 04:08:14","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-8736780/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-8736780/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":106961805,"identity":"fb16cf66-fdf9-4215-a34d-3a02043e6f94","added_by":"auto","created_at":"2026-04-15 09:27:05","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":2022898,"visible":true,"origin":"","legend":"","description":"","filename":"manuscript.pdf","url":"https://assets-eu.researchsquare.com/files/rs-8736780/v1_covered_84adecb2-84c3-463b-ad52-ab323a354a74.pdf"}],"financialInterests":"No competing interests reported.","formattedTitle":"\u003cp\u003eCash Flow Predictability and Firm Volatility: Evidence from China’s Export Tax Rebate Reform\u003c/p\u003e","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Cash flow predictability, firm volatility, financial constraints, small","lastPublishedDoi":"10.21203/rs.3.rs-8736780/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-8736780/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThis paper examines how cash flow predictability affects volatility and be- havior among small firms. 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