Abstract: Based on a sample of A-share listed companies in China from 2007 to 2019, this paper chooses a time-varying DID model to test the effect of tax enforcement on cash holdings, and applies a quasi-natural experiment in which the third phase of the golden tax project. The study finds that tax enforcement significantly increases the level of corporate cash holdings, and the effect is more significant among non-state enterprises, the more competitive product market, and the regions with high marketization. We found that this effect was mainly due to the "governance effect" of the tax enforcement, which led to the increase of cash holdings by curbing over-investment and executives' perks caused by excess cash holdings; further study founds that the excess cash would be used for R&D and dividend payment, achieving the secondary optimal allocation of capital and ultimately increasing the value of cash holdings. This provides micro-level evidence on the effect of the "third phase of the golden tax project" policy and also provides theoretical and empirical support to further improve intelligent supervision and promote the computerization of the taxation system.

Key words: the third phase of golden tax project, tax enforcement, cash holding