Environmental protection tax law and green innovation in China’s pollution-intensive firms: novel evidence from textual analysis approach

Purpose This article analyzes the influence of China’s Environmental Protection Tax Law (CEPTL) on green innovation in pollution-intensive listed firms from 2014 to 2020. Design/methodology/approach Using text analysis to construct the green innovation variable and employing difference-in-differences strategy, we find that CEPTL positively promotes green innovation. Findings Spanning an extensive dataset of 5,907 enterprise-year observations across 965 publicly listed companies, this article also sheds light on the mechanisms through which CEPTL promotes green innovation, including the increases of corporate costs and R&D inputs. Further analysis reveals stronger effects of CEPTL in private firms, firms with small scale and firms headquartered in provinces with a higher level of economic development. Originality/value Our findings highlight the favorable effects of environmental tax on various facets of green innovation in the process and management that are not captured by patent data. These insights can provide valuable implications for policymakers.