Exploring relationship between sustainability and firm performance in travel and tourism industry: a global evidence

Abstract

Purpose The study aims to investigate the relationship between aggregate and individual dimensions of sustainability and financial and stock market performances of the firms in the travel and tourism industry (TTI) across different geographies. Design/methodology/approach The sample under study consists of 146 firms belonging to TTI that have consistently obtained environmental, social and governance (ESG) rating over the period 2011–2017 as a part of Thomson Reuters Asset 4 ESG database. An empirical multivariate panel data model is developed to analyse the impact of sustainability (ESG) on firm profitability and market value within three tourism-related industries (transportation, hotel and leisure). Findings The study extends the existing literature by investigating the impact of each of the vital dimensions of sustainability performance – ESG – and examines how each dimension would affect financial performance and market value among firms within three tourism-related industries (transportation, hotel and leisure). Among the three tourism industries, hotel industry is observed to have the highest ESG compliance, followed by the transportation industry. Based on the agency and stakeholder theory, the authors hypothesized all ESG components to have significant positive effect on the financial and stock market performance; however, the results reveal that each dimension has different impact on financial performance and market value of firms in the tourism industry. Research limitations/implications The study could help firms in the travel and tourism industries to understand which of the dimension of ESG activities is significantly important for their financial and stock market performance. Originality/value The unique contribution of this study is that it considers wider definition of the term “Sustainability” and examines the relationship between financial and stock market performances of the firms and each component of ESG. This is one of the few studies at the global level that provides much needed evidence in the area of sustainability performance by the travel and tourism firms.

The relationship between ESG and firm value. Case study of the automotive industry

“…Yet again, consistent evidence supports the theory that involvement in the environmental and social spheres is a driving factor for financial performance (Abdi et al, 2022). Nevertheless, the tourism sector includes transportation, hotel and leisure (Bodhanwala & Bodhanwala, 2021) components, with each subsector presenting different levels of ESG compliance. Ceteris paribus, this observation can be hold valid for any analyzed sector.…”

Social Activities and Market Value

“…This value reflects the market's desire and belief in the company's intrinsic value. When the stock price is above book value, it indicates a market appreciation (Bodhanwala and Bodhanwala, 2021;Rouf, 2018;Wan, 2020). Conversely, when the stock price is below book value, it suggests a market depreciation.…”

ESG and Firm Performance in Developing Countries: Evidence From ASEAN

“…Enhancing firm performance is always a concern for companies. Several studies have tested the factors that can improve firm performance (Yoo & Managi, 2021;Qoyum et al, 2021;Bodhanwala & Bodhanwala, 2021;Bhaskaran et al, 2021;Alareeni & Hamdan, 2020), and one of them is environmental, social, and governance (ESG) information increase firm performance (Mohammad & Wasiuzzaman, 2021;Yoo & Managi, 2021;Alareeni & Hamdan, 2020). Sustainable value like ESG information is created by sustainable financial institutions focusing on long-term financial and economic benefits (Bhaskaran et al, 2021).…”

“…Atan et al (2018) showed that ESG does not affect firm performance. Bodhanwala & Bodhanwala (2021) also showed that corporate environmental performance has no significant effect on firm performance (ROA). They also found that corporate social performance has a negative effect on ROA.…”