Impact of environmental protection tax on enterprise digital transformation: Evidence from Chinese listed firms

Abstract

This study investigates the impact of China's Environmental Protection Tax (EPT) on enterprise digital transformation (EDT) using data on 3347 Chinese A-share listed firms from 2013 to 2021. By applying a difference-in-differences model, this study introduces a novel perspective on how EPT hindered EDT via a crowding-out effect on digital investment and reductions in human capital and foreign direct investment. Heterogeneity analysis reveals that the negative impact is more pronounced in regions with higher public environmental concern and firms with lower corporate governance. However, the findings also reveal that despite its negative effects on EDT, the EPT has a positive correlation with improved corporate environmental, social, and governance performance, underscoring an unintended environmental benefit. These insights offer a fresh perspective on the interaction between environmental regulations and digital innovation, with implications for both policymakers and enterprises. This study mainly explores the impact of EPTs on EDT and their mechanisms. The study concludes with policy recommendations to mitigate the adverse effects of the EPT on EDT while leveraging its positive ecological outcomes.