IDEAS home Printed from https://ideas.repec.org/a/eee/riibaf/v77y2025ipbs0275531925002387.html

The impact of environmental protection fee-to-tax reform on differentiated environmental management behavior of firms

Author

Listed:
  • Zhang, Jingjing
  • Zhang, Weiwei
  • Su, Chang
  • Kattuman, Paul

Abstract

How does a legal system of imposing environmental protection tax impact the environmental management behavior options available to firms? We examine the issue using data from listed companies in China from 2009 to 2020, utilizing the environmental protection fee-to-tax reform (EFTR) as a quasi-natural experiment. The difference-in-difference estimates indicate that EFTR incentivizes firms to enhance end-of-pipe pollutant treatment and incorporate environmental actions into administration while discouraging the adoption of green production processes, and this finding remains robust across a series of tests. This suggests that corporate environmental management may be more symbolic than substantive. Heterogeneity analysis reveals that local governments' environmental goals and residents' environmental concerns primarily enhance the impact of EFTR on pollutant treatment. In contrast, executives with higher levels of education are better positioned to enhance the effect of EFTR on green production processes. However, financial constraints significantly diminish the environmental advantages of EFTR. Mechanism analysis suggests that EFTR compels firms to disclose more detailed environmental information to bolster their green image, thereby selectively adopting environmental behavior. Overall, this paper sheds light on how firms adapt environmental strategies in response to green tax regulations and offers insights for improving environmental governance policies.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:riibaf:v:77:y:2025:i:pb:s0275531925002387
    DOI: 10.1016/j.ribaf.2025.102982
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0275531925002387
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ribaf.2025.102982?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Sinha, Avik & Mishra, Shekhar & Sharif, Arshian & Yarovaya, Larisa, 2021. "Does Green Financing help to improve the Environmental & Social Responsibility? Designing SDG framework through Advanced Quantile modelling," MPRA Paper 108150, University Library of Munich, Germany, revised 2021.
    2. Li, Fengzuo & Na, Pengjie & Wang, Xiaolan & Li, Xinyu, 2024. "Environmental protection taxes, audit fees and corporate ESG performance," Finance Research Letters, Elsevier, vol. 69(PA).
    3. Samuel M. Hartzmark & Abigail B. Sussman, 2019. "Do Investors Value Sustainability? A Natural Experiment Examining Ranking and Fund Flows," Journal of Finance, American Finance Association, vol. 74(6), pages 2789-2837, December.
    4. De Cara, Stéphane & Henry, Loïc & Jayet, Pierre-Alain, 2018. "Optimal coverage of an emission tax in the presence of monitoring, reporting, and verification costs," Journal of Environmental Economics and Management, Elsevier, vol. 89(C), pages 71-93.
    5. Qi, Yu & Zhang, Jianshun & Chen, Jianwei, 2023. "Tax incentives, environmental regulation and firms’ emission reduction strategies: Evidence from China," Journal of Environmental Economics and Management, Elsevier, vol. 117(C).
    6. Chen, Fanglin & Chen, Zhongfei & Zhang, Xin, 2024. "Belated stock returns for green innovation under carbon emissions trading market," Journal of Corporate Finance, Elsevier, vol. 85(C).
    7. Huang, Zhen & Gao, Ning & Jia, Ming, 2023. "Green credit and its obstacles: Evidence from China's green credit guidelines," Journal of Corporate Finance, Elsevier, vol. 82(C).
    8. Shimshack, Jay P. & Ward, Michael B., 2008. "Enforcement and over-compliance," Journal of Environmental Economics and Management, Elsevier, vol. 55(1), pages 90-105, January.
    9. Hänsel, Martin C. & Franks, Max & Kalkuhl, Matthias & Edenhofer, Ottmar, 2022. "Optimal carbon taxation and horizontal equity: A welfare-theoretic approach with application to German household data," Journal of Environmental Economics and Management, Elsevier, vol. 116(C).
    10. repec:hal:journl:hal-04755369 is not listed on IDEAS
    11. Zhang, Qi & Yu, Zhi & Kong, Dongmin, 2019. "The real effect of legal institutions: Environmental courts and firm environmental protection expenditure," Journal of Environmental Economics and Management, Elsevier, vol. 98(C).
    12. Zhang, Yixiang & Zhou, Weiyi & Liu, Meiling, 2022. "Driving factors of enterprise energy-saving and emission reduction behaviors," Energy, Elsevier, vol. 256(C).
    13. Wang, Jia & Zhang, Shuying, 2024. "Environmental protection tax, green innovation, and environmental, social, and governance performance," Finance Research Letters, Elsevier, vol. 65(C).
    14. Gu, Yan & Ho, Kung-Cheng & Yan, Cheng & Gozgor, Giray, 2021. "Public environmental concern, CEO turnover, and green investment: Evidence from a quasi-natural experiment in China," Energy Economics, Elsevier, vol. 100(C).
    15. Wang, Xiaoyan & Wang, Shimeng & Wu, Keying & Zhai, Chenzhe & Li, Yongle, 2024. "Environmental protection tax and enterprises’ green technology innovation: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 96(PA).
    16. Victor Chernozhukov & Denis Chetverikov & Mert Demirer & Esther Duflo & Christian Hansen & Whitney Newey & James Robins, 2018. "Double/debiased machine learning for treatment and structural parameters," Econometrics Journal, Royal Economic Society, vol. 21(1), pages 1-68, February.
    17. Yu, Min & Cruz, Jose M. & Li, Dong Michelle, 2019. "The sustainable supply chain network competition with environmental tax policies," International Journal of Production Economics, Elsevier, vol. 217(C), pages 218-231.
    18. Huang, Qiping & Li, Yongjia & Lin, Meimei & McBrayer, Garrett A., 2022. "Natural disasters, risk salience, and corporate ESG disclosure," Journal of Corporate Finance, Elsevier, vol. 72(C).
    19. Caiyun Lin & Shibao Lu & Xuyang Su & Chuanhao Wen, 2024. "Retraction Note: Can the greening of the tax system improve enterprises’ ESG performance? Evidence from China," Economic Change and Restructuring, Springer, vol. 57(6), pages 1-1, December.
    20. Ben Lahouel, Béchir & Ben Zaied, Younes & Managi, Shunsuke & Taleb, Lotfi, 2022. "Re-thinking about U: The relevance of regime-switching model in the relationship between environmental corporate social responsibility and financial performance," Journal of Business Research, Elsevier, vol. 140(C), pages 498-519.
    21. He, Yu & Zhu, Xiaobo & Zheng, Huan, 2022. "The influence of environmental protection tax law on total factor productivity: Evidence from listed firms in China," Energy Economics, Elsevier, vol. 113(C).
    22. Yan, Zhijun & Jia, Yuting & Zhang, Bingbing, 2024. "Environmental protection taxes and green productivity: Evidence from listed companies in China," Economic Systems, Elsevier, vol. 48(4).
    23. Li, Jingrong & Liu, Ping, 2025. "Does tax policy affect corporate environmental investment?," Finance Research Letters, Elsevier, vol. 73(C).
    24. Chen, Zhao & Kahn, Matthew E. & Liu, Yu & Wang, Zhi, 2018. "The consequences of spatially differentiated water pollution regulation in China," Journal of Environmental Economics and Management, Elsevier, vol. 88(C), pages 468-485.
    25. Wolfgang Keller & Arik Levinson, 2002. "Pollution Abatement Costs and Foreign Direct Investment Inflows to U.S. States," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 691-703, November.
    26. Wu, Yilin & Huang, Shilei, 2022. "The effects of digital finance and financial constraint on financial performance: Firm-level evidence from China's new energy enterprises," Energy Economics, Elsevier, vol. 112(C).
    27. Zhao, Yunhai & Liu, Rui & Xue, Junyi & Wu, Qihe & Zhang, Xiaohua, 2024. "Environmental protection tax law and corporate financial fraud: Evidence from listed firms in China," International Review of Financial Analysis, Elsevier, vol. 96(PA).
    28. Liu, Guangqiang & Yang, Zhiqing & Zhang, Fan & Zhang, Nan, 2022. "Environmental tax reform and environmental investment: A quasi-natural experiment based on China's Environmental Protection Tax Law," Energy Economics, Elsevier, vol. 109(C).
    29. Donald B. Marron & Eric J. Toder, 2014. "Tax Policy Issues in Designing a Carbon Tax," American Economic Review, American Economic Association, vol. 104(5), pages 563-568, May.
    30. Zhang, Xin & Shi, Chenxiao, 2025. "How does Environmental Protection Tax Law affect corporate investment preferences?," Finance Research Letters, Elsevier, vol. 72(C).
    31. Karmaker, Shamal Chandra & Hosan, Shahadat & Chapman, Andrew J. & Saha, Bidyut Baran, 2021. "The role of environmental taxes on technological innovation," Energy, Elsevier, vol. 232(C).
    32. Zhang, Jinzhu & Liu, Yu & Zhou, Meifang & Chen, Boyang & Liu, Yawen & Cheng, Baodong & Xue, Jinjun & Zhang, Wei, 2022. "Regulatory effect of improving environmental information disclosure under environmental tax in China: From the perspectives of temporal and industrial heterogeneity," Energy Policy, Elsevier, vol. 164(C).
    33. Li, Yujie & Hua, Ziyan, 2024. "Environmental protection tax law and corporate ESG performance," Finance Research Letters, Elsevier, vol. 64(C).
    34. Mikhail Golosov & John Hassler & Per Krusell & Aleh Tsyvinski, 2014. "Optimal Taxes on Fossil Fuel in General Equilibrium," Econometrica, Econometric Society, vol. 82(1), pages 41-88, January.
    35. Ambec, Stefan & Coria, Jessica, 2021. "The informational value of environmental taxes," Journal of Public Economics, Elsevier, vol. 199(C).
    36. Biao Hu & Hongjia Dong & Ping Jiang & Jingan Zhu, 2020. "Analysis of the Applicable Rate of Environmental Tax through Different Tax Rate Scenarios in China," Sustainability, MDPI, vol. 12(10), pages 1-14, May.
    37. Amore, Mario Daniele & Bennedsen, Morten & Larsen, Birthe & Rosenbaum, Philip, 2019. "CEO education and corporate environmental footprint," Journal of Environmental Economics and Management, Elsevier, vol. 94(C), pages 254-273.
    38. Caiyun Lin & Shibao Lu & Xuyang Su & Chuanhao Wen, 2024. "RETRACTED ARTICLE: Can the greening of the tax system improve enterprises’ ESG performance? Evidence from China," Economic Change and Restructuring, Springer, vol. 57(3), pages 1-32, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Wu, Xiuling & Sun, Xueli, 2025. "Environmental protection tax and green low-carbon development," Finance Research Letters, Elsevier, vol. 86(PA).
    2. Tian, Zhenyu & Shao, Qi, 2025. "Does the environmental protection tax deter the entry of polluting firms? Evidence from China," Journal of Asian Economics, Elsevier, vol. 100(C).
    3. Yu, Lianchao & Liu, Donghui & Liu, Qiang & Han, Hongling, 2025. "De-localization of environmental governance and corporate innovation structure: Evidence from a quasi-natural experiment in China," Research in International Business and Finance, Elsevier, vol. 73(PA).
    4. Zhang, Yue-Jun & Shi, Wei & Liu, Jing-Yue, 2024. "Inhibiting or promoting? The impact of carbon emissions trading on corporate environmental responsibility," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    5. Liu, Guangqiang & Yang, Zhiqing & Zhang, Fan & Zhang, Nan, 2022. "Environmental tax reform and environmental investment: A quasi-natural experiment based on China's Environmental Protection Tax Law," Energy Economics, Elsevier, vol. 109(C).
    6. Pan, Xiaozhen & Zhang, Nianming, 2025. "The impact of environmental tax on R&D investment of heavily polluting companies: Incentive or inhibition?," International Review of Economics & Finance, Elsevier, vol. 97(C).
    7. Zhang Zelin & Mui Yee Cheok & Zhang Zelin, 2025. "Mapping the Nexus between Green Taxation and Technological Innovation in Enterprises: A Bibliometric Analysis," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(5), pages 6541-6574, May.
    8. Liu, Xin & Xu, Hui, 2025. "Going green with digital media attention: Evidence from Chinese A-share listed companies’ environmental performance," Research in International Business and Finance, Elsevier, vol. 73(PA).
    9. Wang, Lisha & Pan, Minjie & Qian, Xinlei & Lv, Kangjuan, 2025. "Do specialized courts matter? Environmental judiciary and corporate emissions in China," Energy Policy, Elsevier, vol. 199(C).
    10. Yue Feng & Junfeng Li, 2025. "Driving Corporate Green Investment: Investigating the Role of Common Ownership Along the Supply Chain in Environmental Sustainability," Sustainability, MDPI, vol. 17(17), pages 1-27, September.
    11. Du, Kerui & Liu, Xueyue & Zhao, Cheng, 2023. "Environmental regulation mitigates energy rebound effect," Energy Economics, Elsevier, vol. 125(C).
    12. Bellalah, Mondher & Jawadi, Fredj & Zhang, Detao & Zhang, Jingjing, 2024. "Health burden, environmental decentralization and associated political achievements in China," The North American Journal of Economics and Finance, Elsevier, vol. 74(C).
    13. Dong, Yan & Tian, Jinhuan & Wen, Qiang, 2022. "Environmental regulation and outward foreign direct investment: Evidence from China," China Economic Review, Elsevier, vol. 76(C).
    14. Zhao, Yujie & Yang, Yuanyuan & Hua, Min & Chan, Kam C., 2024. "Social credit scoring system and corporate pollution governance: Insights from China's Social Credit System Construction," International Review of Financial Analysis, Elsevier, vol. 96(PB).
    15. Jiaxin Wang & Jingyi Zhuang & Chao Yan & Kam C. Chan, 2025. "Standing Up or Standing By: Abnormally Hot Temperatures and Corporate Environmental Engagement," Journal of Business Ethics, Springer, vol. 196(1), pages 93-127, January.
    16. Limin Du & Zheng Wang & Zhaohua Xiao, 2024. "Command thy blessing from above: vertically delegated carbon reduction targets and firm export performance in China," Empirical Economics, Springer, vol. 67(6), pages 2643-2675, December.
    17. Li Ji & Tian Zeng, 2022. "Environmental “Fee-to-Tax” and Heavy Pollution Enterprises to De-Capacity," Sustainability, MDPI, vol. 14(9), pages 1-24, April.
    18. Shiqin Su & Siying Li, 2025. "Energy efficiency suppression and spatial spillover effect: a quasi-natural experiment based on China’s environmental protection tax law," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 27(3), pages 6397-6422, March.
    19. Manru Peng & Chendie Wei & Youliang Jin & Hangxin Ran, 2023. "Does the Environmental Tax Reform Positively Impact Corporate Environmental Performance?," Sustainability, MDPI, vol. 15(10), pages 1-19, May.
    20. Jianpei Li & Jierui Huang & Bowen Li, 2024. "Do command‐and‐control environmental regulations realize the win‐win of “pollution reduction” and “efficiency improvement” for enterprises? Evidence from China," Sustainable Development, John Wiley & Sons, Ltd., vol. 32(4), pages 3271-3292, August.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:riibaf:v:77:y:2025:i:pb:s0275531925002387. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ribaf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.