How Does Environmental Tax Influence the Scale and Efficiency of Green Investment among China’s Heavily Polluting Enterprises?

Abstract

This paper investigates the impact of environmental tax on corporate green investment behavior using archival data from China’s A-share-listed companies. We took advantage of the quasi-natural experiment based on China’s environmental “fee-to-tax” reform and employed the difference-in-differences (DID) method. This study goes beyond the existing studies by integrating the scale of green investment with the financial circumstances of the firms to comprehensively assess the effectiveness of green investment. Using the refined Richardson residual econometric model, we accurately measured the green investment efficiency, expanding the policy evaluation of the environmental fee-to-tax transition beyond the investment scale to include efficiency. Our findings indicated that the environmental tax promotes green investment, especially among state-owned firms, firms with fewer financial constraints, and those operating in regions with weaker environmental governance. However, we discovered a trade-off between the growth in the green investment scale and the efficiency of such investments, suggesting a decrease in efficiency due to the tax. Further investigation revealed that corporate agency issues contributed to the heterogeneity in the impact of the environmental tax on green investment efficiency, with firms facing severe agency problems and experiencing more misuse of green investment. This implied that addressing agency issues could alleviate the distortionary effects of the environmental tax on green investment efficiency.

Digitization Meets Energy Transition: Shaping the Future of Environmental Sustainability

“…Ran et al [110], Xiao [111], and Teng et al [112] delved into the ramifications of digitalization and industrial modernization on carbon emission dynamics, underscoring the dual role of digitalization in both exacerbating and mitigating environmental impacts through improved efficiency and the transition to greener industrial practices. Concurrently, Wen and Jiang [113], Guo et al [114], Nie et al [115], and Zhao et al [116] provided a better understanding of how carbon emissions are intricately linked to policy reforms, factor misallocation, and the efficacy of market-based mechanisms in steering China towards its carbon neutrality goals. These scholarly contributions illuminate the complex yet discernible patterns of China's environmental evolution, establishing carbon dioxide emissions not merely as a metric of pollution but as a critical lens through which the broader narrative of environmental sustainability and economic transformation in China can be comprehensively understood.…”