Seeing green but acting clean? Mediation and moderation effects of institutional ownership and leverage in the green tax–tax avoidance relationship

Purpose This study examines whether exposure to green tax incentives is associated with corporate tax avoidance in an emerging-market setting. Using Bangladesh's Renewable Energy Policy (REP) incentives 2008 as a natural setting, it examines the direct effect of green tax incentives (GTI) on tax avoidance (TA) and the mediating role of institutional ownership (INST_OWN) and moderating role of financial leverage (LEV_A), with board gender diversity (GENDIV) examined as a secondary governance mechanism. Design/methodology/approach An unbalanced panel of 42 Dhaka Stock Exchange-listed firms that adopted integrated reporting between 2015 and 2024 (295 firm-year observations) is analyzed using fixed-effects panel regression with year dummies and robust standard errors clustered at the firm level. Green tax incentive is identified via sector eligibility and sustainability disclosure quality. Mediation is tested using the KHB method; moderation is assessed using interaction terms and simple slope analyses. Findings Green tax incentives are associated with lower levels of corporate tax avoidance (β = −0.121, p < 0.05). Institutional ownership partially mediates this relationship (indirect effect = −0.016, p < 0.01), while the association weakens as financial leverage rises (interaction = +0.118) and is no longer statistically distinguishable from zero at high leverage. Board gender diversity shows a negative but statistically insignificant association with tax avoidance. Practical implications Because the compliance-related association is not observed among highly leveraged firms, leverage may warrant attention in the design of green tax incentives. As the sample period ends in 2024, this evidence precedes Bangladesh’s 2025 fifteen-year tax holiday and can inform expectations about that regime rather than evaluate it. Originality/value This study extends prior green tax research by integrating mediation (institutional ownership) and moderation (leverage) within a unified governance framework in an emerging-market renewable policy setting. It offers baseline evidence from the pre-2025 incentive regime and contributes to the sustainability, governance and taxation literature by showing that the association between a green fiscal instrument and tax compliance is conditional on firm-level financial pressure.