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Green innovation serves as a pivotal force driving high-quality economic development and facilitating the achievement of environmental objectives. As a crucial instrument for regulating firms’ environmental practices, the environmental protection tax exerts a central role in fostering green innovation. Using Chinese A-share listed companies from 2011 to 2019 as the research sample, this study employs DID model to empirically examine the impact and underlying mechanisms of the environmental protection tax policy on firms’ green innovation. The results indicate that the environmental protection tax effectively promotes firms’ green innovation activities through the dual mechanisms of innovation compensation and environmental legitimacy pressure. Specifically, executive pay stickiness exerts a positive moderating effect, and the incentive effect of the environmental protection tax is more pronounced in firms with higher pay stickiness. Further analysis reveals that the promotional effect is significantly stronger in key pollution-monitored enterprises and SOEs compared to other types of firms. This study sheds light on the roles of executive pay stickiness, environmental regulation intensity, and nature of property rights as key boundary conditions. It also broadens the understanding of the microeconomic consequences of environmental tax policies, thereby establishing a reference-worthy framework for emerging economies in terms of legalization, differentiation, and local attribution of revenue in environmental tax system reform.
Ye et al. (Wed,) studied this question.