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

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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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