Environmental Protection Taxes and Earnings Management: Nonlinear Effects and Implications for <scp>SDG</scp> 12, <scp>SDG</scp> 13, and <scp>SDG</scp> 16

ABSTRACT Considering the implementation of the new environmental protection law in 2018, this study examines the mechanism of environmental protection taxes (EPT) on corporate earnings management with a two‐way fixed‐effects model, based on the data of Chinese A‐share listed companies from 2018 to 2023. The results reveal that a significant inverted U‐shaped effect exists between EPT and earnings management. Analysts' coverage strengthens the inverted U‐shaped effect of EPT on earnings management and makes the relation curve steeper. Conversely, financial constraints weaken this effect and flatten the curve. Further analysis concludes that firms tend to reduce book profits in response to the pressures posed by EPT, and the degree of this impact first decreases and then increases. This study contributes to understanding the institutional conditions under which environmental taxation supports SDG 12 (Responsible Consumption and Production) and SDG 13 (Climate Action) while reinforcing SDG 16 (Peace, Justice, and Strong Institutions) through improved accountability and information quality. The results provide actionable insights for regulators, investors, and creditors seeking policy designs that promote environmental objectives without inducing unintended reporting distortions.