Impact of China's environmental protection tax on corporate performance: Empirical data from heavily polluting industries

The environmental protection tax (EPT) is an important environmental economic measure in China, and its main purpose is to protect the environment and reduce pollution emissions. We empirically investigate the impact of the EPT on corporate performance based on quarterly data from Chinese A-share listed companies in heavily polluting industries from the 3rd quarter of 2015 to 2020 using the difference-in-differences (DID) model. It is found that the imposition of the EPT significantly reduces the performance of heavily polluting companies in the short run. A mechanism test shows that the EPT has an innovation effect, forcing companies to increase their R&D investment and realize transformation and upgrading, which inhibits the growth of corporate performance in the short run. However, the green effect of the tax is weak, and there is no incentive for companies to invest in green innovation and environmental protection. Heterogeneity tests show that the better the regional institutional environment is, the more pronounced the implementation effect of the tax is; moreover, the smaller a firm is, the more pronounced the pain that the tax brings.

Automated summary

The study empirically investigates the impact of the environmental protection tax on corporate performance in heavily polluting industries in China. The findings suggest that the tax significantly reduces the short-term performance of these companies. However, it also has an innovation effect, leading to increased R&D investment and transformation. The study highlights the weak green effect of the tax and the differences in its impact based on regional institutional environment and firm size.