Tax incentives and environmental, social, and governance performance: empirical evidence from China

The improvement of corporate ESG performance is of great significance to the high quality and sustainable development of the economy. Governments in various countries have introduced many tax incentives to motivate companies to actively fulfill their ESG responsibilities. However, no research has been conducted in academia to study the relationship between tax incentives and ESG performance. This study aims to fill the gap in this area and investigate whether tax incentives can effectively motivate the improvement of corporate ESG performance. Using a two-way fixed effects model, this paper empirically investigates the relationship between tax incentives and corporate ESG performance and the paths of action, using Shanghai and Shenzhen A-share listed companies from 2011 to 2020 as the research sample, and finds that (1) tax incentives significantly contribute to the enhancement of corporate ESG performance; (2) financing constraints play a partly mediating role in the relationship between tax incentives and corporate ESG performance; (3) a favorable business environment can enhance the promotional effect of tax incentives on corporate ESG performance; (4) the incentive effect of tax incentives on corporate ESG performance is more significant among state-owned enterprises, enterprises in the eastern region, larger enterprises, enterprises with more concentrated equity, and enterprises with better quality of internal control. The research in this paper enriches the research perspective on the factors influencing corporate ESG performance and provides strong empirical evidence to support the implementation and improvement of ESG-related tax incentives, helping the implementation of the concept of sustainable development and high-quality economic development.