Abstract
ABSTRACT China’s enactment of the Environmental Protection Tax (EPT) Law is a pivotal milestone in the transition towards a green tax system; however, its impact on enterprises capital market performance remains unclear. We adopt a difference-in-differences approach to investigate the influence of green taxation on the idiosyncratic risk of listed companies. The findings reveal a significant reduction in idiosyncratic risk for heavily polluting enterprises following the introduction of the EPT Law, thus suggesting that green taxation contributes to firms’ enhanced capital market performance. This effect acts through environmental, social, and governance performance and is more pronounced for firms with a stronger resource base.
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