ESG scores relationship with firm performance: panel data evidence from the European tourism industry

Abstract

Purpose – This paper aims to investigate if there is a significant relationship between corporate ESG (environmental, social, and governance) scores and firm profitability (ROA) and whether this relationship is positive, negative, or neutral. Methodology – The study examines all listed companies from the European tourism industry for which ESG scores are available. The final sample consists of 48 firms from 14 European countries and 258 firm-year observations, obtained through the Refinitiv database for the period from 2010 to 2019. Panel regression analysis was used to examine the relationship between ESG scores (independent variable) and ROA (dependent variable), including financial leverage and firm size as control variables as well. Findings – The results show that ESG scores are negatively related to firm performance as measured by ROA and such a relationship is statistically significant at 5%. Higher levels of ESG scores are associated with lower levels of ROA and vice-versa. Conclusion –The findings suggest that instead of just trying to give the appearance of being ESG-oriented, it is important for companies to actually implement proper ESG practices and standards. Also, in order to promote the adoption of environmental, social, and governance (ESG) practices by companies, it is crucial to educate the public about the long-term benefits of these practices and encourage support for companies that follow these standards. Keywords: ESG score, tourism, profitability, Europe. JEL Codes: G30, Q56, Z33.

Is Environmental, Social and Governance (ESG) Disclosure Value Enhancing? Evidence from Top 100 Companies

“…The findings showed contradicting results due to the firm's size being measured by the total assets using the historical value compared to the Tobin's Q, ROA, and ROE that were measured by the market price. Our result is consistent with Demiraj et al (2023) who also found a negative relationship between firm size and firm performance. Moreover, the current ratio (CR) also showed a negative and significant relationship at 10% and 5% on Tobin's Q and ROE, respectively.…”

“…However, firm growth (GROWTH) held the same finding from the main analysis, showing a positive and significant relationship at 1% and 5% on ROA and ROE, respectively. Our additional findings offer evidence of the ESG pillars on market and accounting-based performance in Malaysia since Carnini Pulino et al (2022) and Demiraj et al (2023) only focused on the effects of ESG on the ROA and EBIT. Note: The reported t-statistics are in parentheses.…”