Valuation Impacts of Environmental Protection Taxes and Regulatory Costs in Heavy-Polluting Industries

Wen-Jun Tu, Xiaoguang Yue, Wei Liu and M. James C. Crabbe
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Wen-Jun Tu: Business School, Ningbo University, Ningbo 315211, China
Wei Liu: Business School, Qingdao University, Qingdao 266100, China
M. James C. Crabbe: Wolfson College, Oxford University, Oxford OX2 6UD, UK

IJERPH, 2020, vol. 17, issue 6, 1-21

Abstract: In 2016, the issue of the Environmental Protection Tax Law indicated the enhancement of environmental protection in China. This study examines the market reaction to firms in heavy-polluting industries, and the effects of external legal institutional quality and internal environmental disclosure on firm value around the passage of Environmental Protection Tax Law. Using an event study approach coupled with ordinary least square regressions, the researchers find a significantly negative market reaction to firms in heavy-polluting industries, but this negative reaction varies depending on the expected increase in future regulatory costs. Specifically, the above negative reaction is stronger when the firm reveals that itself or its subsidiary belongs to heavy-polluting industry, however it would be mitigated when a firm is in a region with better quality of legal institutions or discloses environmental improvement activities. Overall, the results are consistent with the market perceiving that the environmental protection tax law enacted would increase regulatory costs for firms in heavy-polluting industries, and also show the higher-quality regional legal institutions and more efforts on environmental protection could relieve the market’s pessimism caused by uncertainty.

Keywords: environmental protection tax; market investor response; regulatory costs; environmental disclosure; regional legal institutions; China (search for similar items in EconPapers)
JEL-codes: I I1 I3 Q Q5 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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