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Environmental protection tax and firms’ ESG investment: Evidence from China

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  • Wang, Xiaolin
  • Ye, Yingying

Abstract

We examine whether and how environmental protection tax (EPT) affects environmental governance performance of firms. To address this problem, we first construct unique indicators to present the different environmental governance of firms in the aspect of E, S, and G, and then combine them with panel data of Chinese listed companies from 2013 to 2020. Through the empirical analysis, we find that EPT has a positive effect on the ESG investment of firms, and the positive effect is more pronounced in private firms, firms with weak competitiveness, and firms located in cities with sound environmental justice. We also find that the pressure on tax payment cost and ex-post non-compliance cost caused by EPT improves the ESG investment of firms. Overall, this paper emphasizes the importance of EPT in promoting the environmental governance of firms.

Suggested Citation

  • Wang, Xiaolin & Ye, Yingying, 2024. "Environmental protection tax and firms’ ESG investment: Evidence from China," Economic Modelling, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:ecmode:v:131:y:2024:i:c:s0264999323004339
    DOI: 10.1016/j.econmod.2023.106621
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    Keywords

    Environmental protection tax (EPT); Green-producing investment; Green responsibility investment; Environmental information disclosure; Environmental social and governance (ESG); Cost pressure;
    All these keywords.

    JEL classification:

    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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