Does an Environmental Protection Tax Promote or Inhibit the Market Value of Companies? Evidence from Chinese Polluting Companies

This study takes the environmental protection tax (EPT) implemented in China in 2018 as the policy background and systematically examines the impact mechanism and boundary conditions of EPT on the market value of listed companies in the polluting industries. The results indicate that EPT significantly inhibits Tobin’s Q of polluting companies. A one-unit increase in EPT leads to a 0.274-unit decrease in Tobin’s Q. The heterogeneity test reveals that the EPT shock exhibits a spatial gradient effect of “Eastern > Central > Western > Northeastern”. The rigidity of the tax system is stronger than that of the pollution discharge fee, and the effect on non-heavily polluting industries is stronger than that on heavily polluting industries. Mechanism analysis shows that while corporate financial flexibility can buffer against short-term EPT shocks, R&D investment and patent quality expose an “innovation trap” characterized by high investment but low conversion efficiency, largely determined by the type of innovation pursued. By elucidating the multiple moderating and mediating mechanisms at play, this study constructs an integrated “institutional pressure-resource constraints-market feedback” model, thereby providing a new analytical framework for environmental economics in emerging markets.