Beyond Green: Can Financial Reform for Ecology Curb Corporate Tax Avoidance?

Green finance policies steer firm behavior by reallocating credit resources, but their governance effects beyond environmental performance—particularly their impact on corporate tax behavior—remain underexplored. Using China’s Green Finance Reform and Innovation Pilot Zones ( Gfrip ) as a plausibly exogenous policy shock, this study examines the impact of Gfrip on tax avoidance using data from Chinese A-share listed industrial firms from 2013 to 2023. A staggered difference-in-differences (DID) design shows that Gfrip significantly reduces aggressive tax avoidance. This finding is robust to parallel-trends tests, placebo tests, and other robustness checks. Mechanism tests identify two channels. First, through an incentive channel, Gfrip lowers debt financing costs, eases firms’ financing constraints, reduces their reliance on tax avoidance as a source of internal funds, and encourages more transparent tax arrangements linked to innovation activities and statutory tax incentives. Second, through a reputational channel, GFRIP strengthens external monitoring and improves corporate social responsibility performance, thereby curbing opportunistic tax avoidance through reputational concerns. Heterogeneity analysis shows that the effect is stronger among non-state-owned firms, financially constrained firms, non-heavily polluting firms, firms located in cities with greater fiscal pressure, and firms operating in regions with more transparent environmental information disclosure. These findings provide firm-level evidence that green finance reform generates governance spillovers and offers a new perspective on how financial policy reshapes the boundaries of corporate tax compliance.