Unintended Effect of Water Regulation: Does Water Resource Tax Inhibit Corporate Supply Chain Transparency?

Abstract

Against the background of escalating global water risks and growing expectations for environmental responsibility in corporate supply chains, external stakeholders are paying greater attention to supply chain transparency and its determinants. Based on a quasi‐natural experiment from China's water resource tax (WRT) pilot reform, this study aims to analyse its effects on corporate supply chain transparency and the underlying mechanisms using a multi‐period difference‐in‐differences (DIDs) methodology. The findings reveal that the WRT policy significantly reduces supply chain transparency among water‐sensitive firms, discouraging explicit disclosure of supplier and customer information. The effects operate primarily through increased information costs and elevated attention risks. Furthermore, this policy effect exhibits significant heterogeneity across firms with varying water resource endowments, market competition environments, environmental horizons, and ownership structures. This study extends the understanding of WRT's impact from a supply chain perspective, unveils its unintended consequences on information transparency beyond firm boundaries, and offers theoretical insights into the interaction between environmental regulations and corporate supply chain management.