Regulatory effects of environmental protection tax law on corporate practices in China

•China's EPTL significantly enhances firm financial performance.•Firm ESG practices links the EPTL to firm financial outcomes.•Firm innovation act as pivotal mediators between the EPTL and financial outcomes. This study focuses on the regulatory effects of China's Environmental Protection Tax Law (EPTL) on corporate practices. Furthermore, it examines the impact of this tax law on firm financial performance mediated by firm environmental, social, and governance (ESG) performance and firm innovation. Our findings indicate that the EPTL positively influences financial outcomes, with ESG and innovation as critical intermediaries. Recommendations include refining the EPTL by providing increased incentives for firms to adopt ESG practices and invest in innovation, fostering a stronger alignment between environmental legal frameworks and corporate behavior.