Exploring the Impact of the Environmental Protection Tax on Chinese Enterprise Performance: The Mediating Role of Agency Costs

The aim of this study is to test the effect of the environmental protection tax on the financial performance of A-share listed companies in Shanghai and Shenzhen from 2016 to 2021. To achieve this, a differences-in-differences model was established to explore the impact of the environmental protection tax, agency costs, and enterprise performance. The analysis specifically examines how the implementation of the environmental protection tax influences enterprise financial outcomes and the function of agency costs between them. The results indicate that the introduction of an environmental protection tax notably lowers agency costs and increases the financial performance of Chinese listed companies. Furthermore, agency costs serve as a mediator in this relationship, amplifying the positive impact of the tax on enterprise performance. To ensure effective environmental protection practices in institutional contexts, the government should reinforce environmental protection tax laws and regulations while strengthening collaborative management mechanisms. Ultimately, the study provides valuable insights into the potential for policy-driven mechanisms to foster a more sustainable and economically viable corporate landscape in China. Received: 7 November 2024 | Revised: 13 January 2025 | Accepted: 13 March 2025 Conflicts of Interest The authors declare that they have no conflicts of interest to this work. Data Availability Statement The data that support the findings of this study are available from the corresponding author upon reasonable request. Author Contribution Statement Jiaxin Huang: Conceptualization, Methodology, Writing - review & editing. Jing Cheng: Conceptualization, Data curation, Writing - original draft, Visualization. Xiao Zheng: Formal analysis, Investigation. Meifen Wu: Data curation, Visualization.