The impact of environmental tax laws on heavy-polluting enterprise ESG performance: A stakeholder behavior perspective

Environmental taxation is an essential tool employed by governments to compel polluting enterprises to undergo green transformation, thereby achieving sustainable development. This paper uses Differences-in-Differences (DID) approach to assess the impact of the China's environmental tax law on the ESG performance of heavily polluting industries. Furthermore, it examines the moderating effect of stakeholder behavior on the relationship between the environmental tax law and the ESG performance of firms. The research findings indicate that the environmental tax law significantly enhances the ESG performance of heavy polluting enterprises by improving the environmental factor. However, heterogeneity is observed based on ownership characteristics and regional variations. Auditors, mass media and corporate ethical behavior exhibit a significant positive moderating effect on the causal relationship between the environmental tax law and the ESG performance of heavily polluting enterprises. This study contributes to a clearer understanding of the intrinsic relationship between environmental tax laws and ESG performance, and offers insights from the perspective of stakeholder behavior for formulating a path towards sustainable development in the country, thereby providing policy lessons for numerous developing countries worldwide.