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

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.