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Environmental protection tax, green innovation, and environmental, social, and governance performance

Author

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  • Wang, Jia
  • Zhang, Shuying

Abstract

This study investigates the impact of China's Environmental Protection Tax Law, implemented as a quasi-natural experiment, on the environmental, social, and governance (ESG) performance of listed industrial enterprises from 2012 to 2022. The objective is to gain a better understanding of how this tax influences corporate behavior toward sustainability, addressing a gap in the literature regarding the effect on nonfinancial performance indicators. By employing a dataset of 9077 observations from the Wind and CSMAR databases, we determine whether the tax leads to improved ESG outcomes and fosters green innovation within these enterprises. The findings reveal that the tax significantly enhances the ESG performance of firms, particularly in environmental aspects, by encouraging green innovations. Moreover, the tax's impact is more pronounced in nonstate-owned enterprises than in state-owned ones. These results suggest that similar fiscal policies can effectively drive corporate sustainability; hence, policymakers should leverage economic tools for environmental management.

Suggested Citation

  • Wang, Jia & Zhang, Shuying, 2024. "Environmental protection tax, green innovation, and environmental, social, and governance performance," Finance Research Letters, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:finlet:v:65:y:2024:i:c:s1544612324006226
    DOI: 10.1016/j.frl.2024.105592
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    References listed on IDEAS

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    1. Liu, Ailan & Dai, Sijia & Wang, Zhixuan, 2023. "Environmental protection tax on enterprise environmental, social and governance performance: A multi-perspective analysis based on financing constraints," Journal of Asian Economics, Elsevier, vol. 89(C).
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    Citations

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    Cited by:

    1. Zhang, Jingjing & Zhang, Weiwei & Su, Chang & Kattuman, Paul, 2025. "The impact of environmental protection fee-to-tax reform on differentiated environmental management behavior of firms," Research in International Business and Finance, Elsevier, vol. 77(PB).
    2. Yan, Sicong & Lv, Yang & Chen, Chaoqi & Hua, Jingtian, 2025. "New environmental protection law, polluting enterprises and corporate green technological innovation," Finance Research Letters, Elsevier, vol. 77(C).
    3. Dou, Weijian & Zhang, Han & Miao, Bowen & Wang, Bin, 2025. "How do analyst attention and green credit promote corporate green innovation?," International Review of Economics & Finance, Elsevier, vol. 99(C).
    4. Zhang, Jingwei & Leng, Haijuan, 2025. "Does green innovation enhance corporate social responsibility? ——Evidence from China," Finance Research Letters, Elsevier, vol. 72(C).
    5. Chen, Hong & Singh, Baljeet & Gangopadhyay, Partha & Tanin, Tauhidul Islam & Das, Narasingha, 2025. "Threshold effects of environmental tax on climate vulnerability," International Review of Economics & Finance, Elsevier, vol. 103(C).
    6. Ren, Zhongfu & Xu, Han, 2025. "From fee to tax: Can legal system strengthening enhance environmental performance?," Finance Research Letters, Elsevier, vol. 86(PF).
    7. Zhang, Shujun & Chen, Dingyang & Zou, Qifeng, 2025. "China's green transformation under the dual incentives of economic growth and environmental protection," International Review of Financial Analysis, Elsevier, vol. 102(C).
    8. Sun, Lu & Zhou, Haizhen & Huang, Feng, 2025. "How the introduction of the “Dual Carbon” targets drives ESG disclosure in manufacturing enterprises?," International Review of Economics & Finance, Elsevier, vol. 101(C).
    9. Wu, Xiuling & Sun, Xueli, 2025. "Environmental protection tax and green low-carbon development," Finance Research Letters, Elsevier, vol. 86(PA).
    10. Wei Tao & Jian-ya Zhou & Ye-ling Zhao, 2024. "Research on the path of green technology innovation driven by the Environmental Protection Tax Law: Based on data of heavy polluting enterprises," PLOS ONE, Public Library of Science, vol. 19(7), pages 1-17, July.
    11. Yang Liu & Sameer Kumar & Huiqing Liu & Shun Li & Ziyun Zhou, 2025. "ESG performance, digital transformation, and green innovation," Humanities and Social Sciences Communications, Palgrave Macmillan, vol. 12(1), pages 1-19, December.

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