We examine whether firms hold more cash in the face of tax uncertainty (hereafter tax risk), namely firms facing greater tax uncertainty are more likely to delay capital investments and that the research and development (hereafter R&D) expenditures made by these firms are lower than that of firms facing less tax uncertainty. In particular, our research investigates the effect of firm’s tax risk on under-investment, which is leading to a precautionary motive to hold cash. More recently, one study in this line of research reports that a significant portion of the cash buffer is associated with uncertainty regarding a firm’s tax positions (Hanlon et al., 2017), and another study in this line of research reports that an increase in tax uncertainty relates to delays in firms’ large capital expenditures (Jacob et al., 2018), consistent with precautionary motives for holding cash. In contrast, the previous domestic research shows that firm’s tax avoidance is positively related to over-investment (e.g., Shim, 2011; Jung, 2012). Thus, we predict that firms will lower probability of a capital investment or R&D investment in a given year engage in precautionary saving of cash in the face of tax uncertainty (tax risk). By contrast, which is compared to firms with high tax avoidance. In that sense, our tests explore another possible real effect of firm with tax uncertainty on investment (i.e., capital investment or R&D investment), the effect on a firm’s level of investment in a given year. For analysis, we use the level of total investment divided in both capital and R&D investments, and following Biddle et al. (2009), we also measure abnormal investment, respectively. In addition, we use a variable over-investment (or under-investment) to distinguish between situations in which a given firm is more (less) likely to over-invest (under-invest) in the top (bottom) quartile of unexplained investment (i.e., following Biddle et al. (2009) model utilize the residuals from regressions). Our variable of interest, tax risk (hereafter TAXRISK), which we measure using the five-year period t-4 to t standard deviation of Cash (GAAP) ETR (e.g., Guenther et al., 2017; Drake et al., 2017). The variable for comparative purpose, tax avoidance (hereafter TAXAVD), which we calculate the Cash (GAAP) ETR as the ratio of the sum of the cash tax payments (tax expense) over a five-year period t-4 to t to the sum of income before taxes over the same five-year period t-4 to t (Dyreng et al. 2008). Our sample consists of firms from the Korea Exchange in the KISVALUE database during fiscal years ending between December 31, 2003 and December 31, 2016. We consider 7,726 firm-year observations for sample firm satisfying of the criteria for the sample period. Our main findings are as follows. First, after controlling for several factors that affect the dependence variable, we find that, on average, firms facing greater tax risk (as measured by ETR volatility) decreases the level of investment, more specially capital investment rather than R&D investment (i.e. the effect is most pronounced for Cash ETR volatility than GAAP ETR volatility). In contrast, we find also that firms with high tax avoidance (as measured by the long-run ETR) increases the level of investment, more specially R&D investment rather than capital investment. Second, in the over-investment group (i.e., we measure indicator variables that equal 1 for firms in the top quintile of R&D or capital investment, and 0 otherwise), we find that a significant and negative association between tax risk and the abnormal capital investment, whereas in the under-investment group (i.e., we measure indicator variables that equal 1 for firms in the bottom quintile of R&D or capital investment, and 0 otherwise), we find that a significant and positive association between tax risk and the abnormal capital investment. On the other hand, in the over-investment group, we find that a significant and positive association between tax avoidance and the abnormal R&D investment, whereas in the under-investment group, we find that a significant and negative association between tax avoidance and the abnormal R&D investment. Overall, these results show that firms with high tax risk related to a reduction in capital investment levels. Whereas, we show that firms with high tax avoidance related to a expansion in R&D investment levels. Overall, we interpret the evidence as showing that tax uncertainty is associated with larger cash balances due to a precautionary motive to hold cash for potential future tax burden. Therefore, firms facing with higher tax risk decreases the level of capital investment, however R&D investment are not associated with. Our results show that tax risk (i.e., tax risk measure as the volatility of firms’ annual Cash or GAAP ETRs) has important real effects. Our paper makes additional contributions to the related literature. For examples, we testing tax uncertainty allows us to extend the literature on the effects of tax avoidance and, in particular, on the real effects of tax risk, in the opposite direction, unlike tax avoidance. Also, our analysis runs parallel to the contribution in Hanlon et al. (2017) and Jacob et al. (2018). For examples, our study investigates a different cash holding motive emphasized precautionary motive for cash related to tax uncertainty and examines an opportunity cost of holding cash for this reason (i.e., potential delays in capital investment). In addition, our study also complements research asking whether tax-related uncertainty about future cash flows changes influences capital investment. For examples, as a second contribution to the above literature, our study provides an empirical and novel evidence on how uncertainty related to tax positions will alter firm’s decisions about investment.