Environmental Protection Tax and Firms’ ESG Investment: Evidence from China

Does environmental protection tax (EPT) improve firms’ environmental governance performance? Previous studies ignore that EPT affects firms' environmental governance behavior by increasing discharge and non-compliance costs. To fill this gap, we estimate the impact of EPT on firms' environmental, social, and governance (ESG) investments using Chinese listed firms during 2013-2020. we propose two key hypothesises: "Hypothesis 1A. EPT increases the firm’s green-producing and green-responsibility investment" and "Hypothesis 1B. EPT improves the quality of a firm’s environmental information disclosure". We estimate the impact of EPT on firms' environmental, social, and governance (ESG) investments using Chinese listed firms during 2013-2020. To evaluate firms’ ESG activities, we construct specific E, S, and G indicators relating to the environment, including the firm’s green-producing investment, green responsibility investment, and environmental information disclosure, which highlight the key impact of EPT on firms’ environmental governance. The three dimensions (E, S, and G) of ESG are often considered independent in most studies. but they can be relevant on an environmental level, reflecting the different ways in which corporate environmental governance is conducted. EPT is measured at the firm level using pollution discharge fees from 2013 to 2017 and pollution discharge taxes from 2018 to 2020. We find that EPT significantly forces firms to engage in more ESG activities after controlling for firm characteristics, firm-level, and year-level fixed effects. Our findings are robust to IV approaches, Heckman Correction, panel Generalized Method of Moments (GMM) estimations, an alternative EPT measure (EPT standards at the prefecture-level city), and ESG measures (ESG scores from a third party), as well as a group test. We also investigate the channel through which EPT boosts firms' ESG activities. One is an increasing tax payment as polluting discharges increase. The other is the ex-post noncompliance cost because EPT imposes strict penalties on violators, it includes illegal costs, negotiation costs, and litigation costs. We find that EPT has a positive impact on ESG in firms with greater cost pressure, which is measured by highly polluting industries and experiences with environmental controversy. Furthermore, we find that the ESG improvements are more significant in firms that are privately controlled, located in areas with sound environmental protection justice, and have weaker competitiveness.

环境保护税（EPT）是否能够提升企业环境治理绩效？既往研究忽视了一点，即EPT通过增加排放和非合规成本来影响企业的环境治理行为。为填补这一空白，本研究采用2013至2020年间中国上市公司的数据，估计EPT对企业环境、社会和治理（ESG）投资的影响。本研究提出了两个关键假设：'假设1A. EPT提升了企业的绿色生产和绿色责任投资'以及'假设1B. EPT改善了企业环境信息披露的质量'。我们利用2013至2020年中国上市公司的数据，估计EPT对企业ESG投资的影响。为评估企业的ESG活动，我们构建了与环境相关的特定E、S和G指标，包括企业的绿色生产投资、绿色责任投资和环境信息披露，这些指标突出了EPT对企业环境治理的关键影响。在大多数研究中，ESG的三个维度（E、S和G）通常被视为相互独立，但在环境层面，它们可能具有相关性，反映了企业环境治理实施的不同方式。EPT的测量采用2013年至2017年的污染排放费和2018年至2020年的污染排放税，在考虑了企业特征、企业层面和年份层面的固定效应后，我们发现EPT显著促使企业参与更多的ESG活动。我们的发现对工具变量方法、Heckman校正、面板广义矩估计（GMM）、替代的EPT衡量方法（地级市的EPT标准）和ESG衡量方法（第三方的ESG评分）以及分组测试都具有稳健性。此外，我们还调查了EPT提升企业ESG活动的渠道。其一为随着污染排放的增加而增加的税收支付。其二为事后的非合规成本，因为EPT对违规者施加了严格的处罚，包括非法成本、谈判成本和诉讼成本。我们发现，对于成本压力较大的企业，EPT对ESG的积极影响更为显著，这可以通过高污染行业和经历环境争议来衡量。此外，我们发现，在私营企业、位于环境保护司法健全地区以及竞争力较弱的企业中，ESG的改善更为显著。