Corporate tax avoidance activities not only reduce investment efficiency and increase stock price crash risks, but also undermine the fairness of the tax system and affect government tax revenue. Therefore, the issue of corporate tax avoidance has always been a focus of attention for governments and the general public in various countries. Current research mainly explores the impact of hard regulatory measures by governments on corporate tax avoidance, while this paper focuses on the governance effect of ESG ratings, a form of market-based soft regulation, on corporate tax avoidance.

Taking the first release of ESG ratings by SynTao Green Finance as a quasi-natural experiment, this paper adopts the multi-period DID model to study the impact of ESG ratings on corporate tax avoidance. The results indicate that ESG ratings can reduce the degree of corporate tax avoidance. Dynamic effect analysis reveals that the inhibitory effect of ESG ratings on corporate tax avoidance began to manifest in the year when the ESG ratings were first published by SynTao Green Finance and continues to have a long-term effect. Mechanism testing shows that information risks and tax shield effects are the main paths for ESG ratings to inhibit corporate tax avoidance. Heterogeneity analysis reveals that the inhibitory effect of ESG ratings on corporate tax avoidance is more pronounced in enterprises with higher managerial myopia, mature enterprises, and enterprises that attract greater attention from the capital market. Finally, while ESG ratings constrain tax avoidance activities, they also increase the short-term operational risks faced by enterprises.

The possible marginal contributions of this paper are as follows: First, it provides new evidence for evaluating the role of ESG ratings in emerging markets, thereby better addressing the ongoing debate regarding the effectiveness of ESG ratings in emerging markets and transition economies. Second, by treating the first release of ESG ratings by SynTao Green Finance as an exogenous shock, it explores and enriches the new mechanism for ESG ratings to inhibit corporate tax avoidance from the two dimensions of information risks and tax shield effects. Third, it reveals the boundary conditions of ESG ratings in governing corporate tax avoidance under different contexts from the perspectives of individuals, organizations, and environments, which is valuable for regulatory authorities in formulating more targeted tax regulatory policies.