ENVIRONMENTAL PROTECTION TAX LAW AND ESG PERFORMANCE: THE MEDIATING EFFECT OF GREEN INNOVATION AND FINANCING CONSTRAINTS

Abstract

The ESG performance of Chinese enterprises is important for addressing sustainability challenges. This study uses Stakeholder Theory, the Theory of Economic Externality, and Signalling Theory to explore the influence of the Environmental Protection Tax Law on ESG performance, along with the mediating roles of green innovation and financing constraints. It adopts a recursive system of equations and uses data from 9,831 A - share main - board listed companies in China for empirical validation. The research findings show a positive correlation between the Environmental Protection Tax Law and ESG performance through baseline results, endogeneity analysis, and robustness analysis. The impact is more obvious on state - owned or small and medium - sized enterprises. Green innovation and financing constraints are respectively positively and negatively correlated with ESG performance. The Baron and Kenny four - step method is used to examine their mediating effects, both of which are significantly associated with ESG performance. This research advances Stakeholder Theory by exploring the government's influence on ESG via the Environmental Protection Tax Law. It also provides implications for governments and enterprises to formulate targeted measures for sustainable development.