How Does Environmental Protection Tax Affect Corporate Environmental Investment? Evidence from Chinese Listed Enterprises

This study mainly investigates the nexus of environmental protection tax and corporate environmental investment using a quasi-natural experiment and the difference-in-difference method. On the basis of 422 Chinese listed enterprises from 2012 to 2020, empirical results show that environmental protection tax has significantly reduced corporate environmental investment in China. In terms of mechanism, environmental protection tax inhibits corporate environmental investment through the financing constraints and the substitution effect of innovation investment. In terms of heterogeneity, environmental protection tax has a significant inhibitory effect on environmental investment for large firms, state-owned firms, and firms located in cities with strict regulations and economically developed cities. Environmental protection tax has a negative effect on corporate environmental investment, mainly through direct effect, innovation substitution effect, and financing inhibition effect.

Automated summary

This study investigates the relationship between environmental protection tax and corporate environmental investment in China using a quasi-natural experiment and the difference-in-difference method. The empirical results show that environmental protection tax significantly reduces corporate environmental investment. The mechanism behind this is that environmental protection tax inhibits corporate environmental investment through financing constraints and substitution effect of innovation investment. The inhibitory effect of environmental protection tax on environmental investment is significant for large firms, state-owned firms, and firms located in cities with strict regulations and economic developments.