Environmental tax reform and greenwashing: Evidence from Chinese listed companies

Abstract

With more regulated environmental taxes, will enterprises adopt or evade green production activities passively? To uncover this question, we apply the difference-in-differences model to analyze the impact of environmental tax reform on corporate greenwashing with the data of Chinese listed companies from 2014 to 2019. First, we find that environmental tax reform increased greenwashing in high-polluting companies. Results were robust in a series of different econometric specifications. Second, environmental tax reform has mainly increased greenwashing in enterprises with lower financing constraints, non-state-owned and small-sized enterprises. In addition, the lower environmental concerns of the government and enterprises tend to increase the degree of greenwashing of enterprises. Third, environmental tax reform does not significantly increase firms' green innovation and environmental investments, demonstrating that high-polluting firms incline to greenwash to cope with environmental regulation in the short run.