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<p>Environmental regulation has emerged as an important tool to govern corporate misbehavior, but its impact on earnings management, a hidden form of financial manipulation, remains under-researched. In this paper, the Chinese Environmental Protection Tax (EPT) is used as a background. The paper empirically examines EPT's&#xa0;impact on corporate earnings management and explores its mechanism of action through the Difference-in-Differences (DID) model based on the data of A-share listed firms. It is found that the level of corporate earnings management is significantly reduced after the implementation of EPT, which is mainly achieved by strengthening public surveillance and promoting the improvement of internal governance by corporations, while the direct role of government regulation is relatively limited. The results suggest that EPT not only help to achieve environmental objectives, but also produce positive corporate governance effects. Based on this, this paper implies that policy makers should be aware of the governance spillovers of environmental taxes, and corporate management should take this opportunity to improve internal control, transparency and compliance.</p>

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Examining the effect of environmental protection tax on corporate earnings management practices: a multidimensional governance perspective analysis

  • 期刊论文

  • 发表日期：

    2025年5月23日

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  • Zhixuan Wang,
  • Sijia Dai,
  • Li Chen,
  • Chuanwang Sun

摘要

Environmental regulation has emerged as an important tool to govern corporate misbehavior, but its impact on earnings management, a hidden form of financial manipulation, remains under-researched. In this paper, the Chinese Environmental Protection Tax (EPT) is used as a background. The paper empirically examines EPT's impact on corporate earnings management and explores its mechanism of action through the Difference-in-Differences (DID) model based on the data of A-share listed firms. It is found that the level of corporate earnings management is significantly reduced after the implementation of EPT, which is mainly achieved by strengthening public surveillance and promoting the improvement of internal governance by corporations, while the direct role of government regulation is relatively limited. The results suggest that EPT not only help to achieve environmental objectives, but also produce positive corporate governance effects. Based on this, this paper implies that policy makers should be aware of the governance spillovers of environmental taxes, and corporate management should take this opportunity to improve internal control, transparency and compliance.