Assessing environmental protection Tax's impact on firms' green practices: The mediating effect of green innovation and the moderating effect of executive green awareness

Environmental sustainability has emerged as a critical global priority, driving an increasing focus on how fiscal policies in various countries can promote sustainable business practices. Despite global efforts towards sustainability, the impact of fiscal measures on green practices remains underexplored in existing literature. This study aimed to fill this gap by assessing the impact of China's environmental protection tax on firms' green practices. The study employed a difference-in-differences methodology to provide robust evidence on how fiscal policies influenced environmental behaviors in heavily polluting industries from 2009 to 2019. The findings revealed that the environmental protection tax significantly improved firms' green practices, primarily mediated by green innovation. This effect was particularly strong in state-owned and large enterprises. Furthermore, executive green awareness played a critical role in amplifying the positive effects of these taxes on green practices. This study provides novel insights into integrating environmental tax policies with corporate innovation and executive green awareness to drive sustainable business practices, offering strategic guidance for policymakers and corporate leaders.