Using data from A-share listed companies from 2009 to 2020, the micro-level governance effects of tax reduction incentives are explored from the perspectives of “shifting from real” and “to virtual”. The results show that the tax reduction incentives can mitigate the shift from real to virtual of enterprises, and the financing constraint plays a mediating role in the relationship between the two. The study further finds that the high level of management shareholding and equity balance positively moderates the relationship between the tax reduction incentive and the“shift from real to virtual”of enterprises. Heterogeneity analysis finds that the effect of tax reduction incentives is more pronounced in the sub-sample of non-SOEs and low government subsidies. In addition, tax reduction incentives are more obvious in mitigating the trend of financialization of non manufacturing enterprises and more significant in promoting real investment in manufacturing enterprises. The results of this study provide empirical evidence for the government to adjust its tax policies to promote the development of substantial economy.