Abstract
Existing researches verify Porter hypothesis mainly through one of its core establishment paths, innovation compensation, but ignore the other one, first-mover advantage. To further clarify the mechanism of Porter hypothesis, this paper considers both paths and further distinguishes between environmental R&D and non-environmental R&D. Based on the principle of the smooth transition of "charge to tax" in China, this paper, taking Chinese A-share listed companies that have disclosed environmental R&D from 2008 to 2017 as sample and predicting environmental tax by pollution charge, analyses the relationship between environmental tax and firm performance and the transmission mechanism between them. Our results show that environmental tax can improve firm performance and this influence remains in long term. After introducing instrument variable (IV) to deal with endogeneity and conducting a series of robustness tests, we find that the relationship between environmental tax and firm performance is robust causality. Furthermore, using mediating effect model to analyse the transmission mechanism, we prove that environmental tax can affect firm performance through innovation compensation and first-mover advantage, which confirms the two core paths of Porter hypothesis. This study reveals the micro mechanism of environmental tax on firm performance, provides evidence from China to support strong Porter hypothesis, and helps guide environmental tax reform and corporate green strategy management.