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Environmental Protection Tax (EPT) and Its Influence on Firms’ Financial Health and Innovation Capabilities: Evidence from Chinese Listed Companies

Author

Listed:
  • ErShang Tian

    (Department of Accounting and Taxation, School of Management, Kyung Hee University, Seoul 02447, Republic of Korea)

  • Sung Ook Park

    (Department of Accounting and Taxation, School of Management, Kyung Hee University, Seoul 02447, Republic of Korea)

Abstract

This study examines the impact of the environmental protection tax (EPT) on the liquidity and green technological innovation of listed companies in China from 2013 to 2023. Using a difference-in-differences (DID) approach, we analyze the short-term financial consequences of the EPT, focusing on liquidity ratios while also examining its effects on innovation through research and development investments. The results suggest that the EPT significantly reduces corporate liquidity, particularly in industries with high environmental compliance costs, thereby placing financial pressure on firms. Although the EPT stimulates innovation, the inherent time lag in realizing financial returns from R&D investments exacerbates short-term liquidity problems. This research offers important insights for policymakers seeking to balance sustainability goals with corporate financial health.

Suggested Citation

  • ErShang Tian & Sung Ook Park, 2024. "Environmental Protection Tax (EPT) and Its Influence on Firms’ Financial Health and Innovation Capabilities: Evidence from Chinese Listed Companies," Sustainability, MDPI, vol. 16(23), pages 1-16, December.
    • Handle: RePEc:gam:jsusta:v:16:y:2024:i:23:p:10585-:d:1535527
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    References listed on IDEAS

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    2. Suyu Huang & Hanlian Lin & Yongjunbei Zhou & Haonan Ji & Naiping Zhu, 2022. "The Influence of the Policy of Replacing Environmental Protection Fees with Taxes on Enterprise Green Innovation—Evidence from China’s Heavily Polluting Industries," Sustainability, MDPI, vol. 14(11), pages 1-23, June.
    3. Ouyang, Xiaoling & Li, Qiong & Du, Kerui, 2020. "How does environmental regulation promote technological innovations in the industrial sector? Evidence from Chinese provincial panel data," Energy Policy, Elsevier, vol. 139(C).
    4. Guixiang Cao & Jinghuai She & Chengzi Cao & Qiuxiang Cao, 2024. "Environmental Protection Tax and Green Innovation: The Mediating Role of Digitalization and ESG," Sustainability, MDPI, vol. 16(2), pages 1-26, January.
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