Flowing toward transparency: impact of China’s water resource tax policy pilot on corporate water disclosure

Purpose - Amid the increasing water risks faced by firms, external investors are becoming more interested in corporate water disclosure and research on its drivers has become prominent. This paper aims to investigate the impact of water resource tax (WRT) on water disclosure and other related drivers. Design/methodology/approach - This study uses the WRT policy as a quasi-natural experiment and applies the difference-in-differences method. Findings - The results indicate that WRT policy significantly stimulates water disclosure. Improving green innovation and strengthening internal control are potential channels through which WRT works. Moreover, WRT’s effect is more pronounced in firms that face high institutional pressures and have better internal resource support. Practical implications - The findings suggest that water-sensitive firms should disclose water information to acquire resources from external stakeholders to support their green transition. It also provides implications for governments to incorporate other external forces in shaping the direction and intensity of WRT and consider the resource constraints of small and private firms in green transformation. Social implications - This study is of assistance in promoting water environmental protection in areas experiencing water stress and provides an opportunity for external stakeholders (external investors, nongovernmental organizations, governments, consumers, suppliers, communities and media) to advocate the water disclosure of firms with high water risks. Originality/value - The attempt is novel in the context of considering the water regulation risks and the demands of external stakeholders. It provides new insights into the factors influencing water disclosure from the perspective of political stakeholders.