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Environmental taxes, political connections, and firm financialization: Evidence from China's environmental tax reform

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  • Yang, Zhijiu
  • You, Fengyi
  • Qin, Yanfang
  • Wu, Ge

Abstract

This study identifies the impact of environmental taxes on firm financialization. Using a triple-differences (DDD) strategy, we find that the enactment of the Environmental Protection Tax Law significantly inhibits firm financialization, which is primarily driven by firms with political connections. The decline in firm financialization can be attributed to increased investments in R&D and environmental protection, especially for politically connected firms. Further analyses suggest that environmental enforcement and legal environments amplify the inhibitory effect. We argue that the fee-to-tax reform leads environmental protection to the rule of law and reduces potential government-business collusion, which is conducive to long-term environmental governance.

Suggested Citation

  • Yang, Zhijiu & You, Fengyi & Qin, Yanfang & Wu, Ge, 2025. "Environmental taxes, political connections, and firm financialization: Evidence from China's environmental tax reform," Finance Research Letters, Elsevier, vol. 78(C).
    • Handle: RePEc:eee:finlet:v:78:y:2025:i:c:s1544612325004416
    DOI: 10.1016/j.frl.2025.107178
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