Environmental Protection Fee-to-Tax and Corporate Environmental Social Responsibility: A Test Based on Corporate Life Cycle Theory

Abstract

Corporate environmental social responsibility enhancement is an important way to promote green and low-carbon economic transformation and achieve high-quality development. As an important reform of China’s environmental taxation system, environmental protection fees and taxes play a unique role in environmental governance. However, faced with the increase in the intensity of environmental regulations after the implementation of the environmental protection fee-to-tax, will firms take the initiative to assume environmental social responsibility (ESR)? This paper uses the implementation of China’s Environmental Protection Tax Law in 2018 as a quasi-natural experiment to study the impact of environmental protection fee-to-tax policy on corporate ESR from a life-cycle perspective. We find that, overall, the environmental protection fee-to-tax reform policy significantly increases the likelihood of corporate ESR by 66%. By the life cycle stage, the effect of environmental protection fee-to-tax policy is mainly reflected in maturity and decline stage firms, and the impact on growth stage firms is not obvious. The design of the current environmental protection tax system and the differences in financial status, business strategies, and environmental management levels of firms in different life cycle stages are important factors in this phenomenon. Further sub-sample regressions show that the environmental protection fee-to-tax policy significantly increases the ESR among state-owned, key regulated and higher financing-constrained firms, especially those in the maturity and decline periods. The findings of this paper enrich corporate life cycle theory and provide a reference for decision making to further improve environmental tax policies to stimulate a firm’s green and low-carbon transformation.